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Britain’s Q4 2016 Growth Report Hints at a Gloomy 2017 Despite Strong Pound Euro Over the Last Week

With the coming week likely to be quiet for Sterling trade until Markit’s UK PMIs are published towards the end of the week, the Pound to Euro exchange rate was sold from its highs on Friday afternoon amid a lack of fresh Sterling appeal.

Despite its Friday afternoon slip, GBP EUR was able to easily sustain over a cent’s worth of gains throughout the week overall.

The main reasons for the pair’s gains throughout the week were Eurozone political concerns, as well as hopes that UK inflation and retail sales would outdo expectations in 2017.

Next week, the Euro is likely to take point in GBP EUR trade. Key Eurozone ecostats including employment and inflation reports from Germany and the bloc as a whole could support the shared currency if they impress.

[Previously updated 12:54 GMT 24/02/2017]

The Pound to Euro exchange rate neared its two-month-high once again on Friday morning, but by the early afternoon was trending slightly lower.

Some investors returned to the Euro as analysts predicted that Francois Bayou backing Emmanuel Macron in this year’s France election gave Macron a better chance of beating anti-EU candidate Marine Le Pen.

However, GBP EUR still looked on track to securely record at least a cent of gains throughout the week at the time of writing.

A lack of fresh UK or Eurozone ecostats on Friday meant there was little influence behind GBP EUR movement on Monday morning. Instead, traders merely bought the Euro up from its lows.

[Previously updated 17:01 GMT 23/02/2017]

Towards the end of Thursday’s European session, the Pound to Euro exchange rate extended its gains.

With a lack of influential domestic data due for publication on Friday, GBP EUR is likely to end the week over a cent above its opening levels of 1.16.

Investors were generally unimpressed by the day’s Eurozone data, despite Germany being confirmed as the fastest growing major economy of 2016.

Higher UK inflation expectations as well as Eurozone political concerns allowed Pound Euro to easily hold above the level of 1.18 throughout the day.

There is rising speculation that the UK House of Lords will be able to pressure the UK government into fighting for the citizenship rights of EU nationals living in the UK. This has also strengthened Pound demand.

[Previously updated 13:01 GMT 23/02/2017]

Thursday’s session saw the Pound to Euro exchange rate making modest gains, as investors largely brushed over the day’s final Q4 German Gross Domestic Product (GDP) results.

Traders were instead focused on new polls from Citi bank and YouGov, which indicated that UK 2017 inflation expectations are considerably high among the public.

Citi bank analysts also speculated that the effects of inflation could be even wider than already seen, affecting wages and rents.

Economists Christian Schulz and Ann O’Kelly from Citi speculated that the Bank of England (BoE) may even be pressured into tightening monetary policy despite Brexit uncertainty.

[Published 06:00 GMT 23/02/2017]

The Pound to Euro exchange rate remained in the region of 1.18 on Wednesday but failed to advance further due to underwhelming UK growth data, could the UK’s economic outlook keep the GBP/EUR pairing pressured?

Britain’s preliminary Q4 2016 Gross Domestic Product (GDP) results came in mixed. The quarter-on-quarter print improved from 0.6% to 0.7%, but, the Q4 year-on-year UK growth stat was revised down from 2.2% to 2%. This, as well as recent news of reined in consumer spending, left the Pound weaker on Wednesday.

Britain’s overall 2016 GDP was revised down from 2% to 1.8% due to the disappointing Q4 results. This meant Britain was no longer the fastest growing G7 nation, as Germany’s 2016 GDP came in at 1.9%.

John Hawksworth, chief economist from PwC, commented on Britain’s annual growth rate;

‘The main reason for the downward revision seems to have been weaker North Sea oil and gas production during the first half of 2016; however, this is a sector-specific trend that does not really reflect the underlying strength of the UK economy. Excluding oil and gas output, estimated UK GDP growth might actually have been revised up in 2016.’

Analysts have also noted consumer sectors slowed considerably towards the end of 2016 and look to continue slowing in 2017. As services make up the largest chunk of Britain’s economic growth, slowing retail activity has left investors worried that the UK economy could falter in 2017.

Although the report also indicated that fears of a post-Referendum recession in Britain were misplaced, the Pound was unable to extend gains against the Euro.

Other news driving the Pound Euro exchange rate this week has included anti-EU French Presidential candidate Marine Le Pen gradually narrowing the gap between herself and current frontrunner Emmanuel Macron.

After 2016’s Brexit and Trump votes, investors appear to be taking no chances and are getting ahead on the possibility that Le Pen could see a surprise Presidential win.

Kit Juckes from Societe Generale stated the Euro will continue to face significant pressure from this in the coming months;

‘Bloomberg have now been tracking the implied probability of the main candidates winning from Oddschecker for just over a month and Marine le Pen’s odds have risen steadily over that period while Emmanuel Macron and François Fillon’s have varied more. The net result is that all three are virtually level-pegging now. So much uncertainty with 9 weeks to go until the first round of the election means we will probably see nervousness persist, and undermine the Euro across the board.’

Because of the persistent concern that Le Pen could win the election and withdraw France from the Eurozone, the shared currency was unable to benefit from Wednesday’s solid Eurozone ecostats.

Ifo’s German business confidence surveys for February beat projections in all prints. Business climate improved from 109.9 to a solid 111. Expectations rose from 103.2 to 104. Lastly, current conditions rose from 116.9 to 118.4.

Italy’s final January Consumer Price Index (CPI) results also beat projections, coming in at 1% year-on-year. The Eurozone’s overall final January inflation results met expectations at 1.8% YoY and -0.8% month-on-month.

Thursday will see the publication of the Germany’s final Q4 GDP figures. Germany’s growth rate is expected to come in at 1.6% YoY and 0.4% QoQ. GfK will also publish its German consumer confidence survey for March.

Even if these results impress, underlying political jitters could limit the Euro’s strength. If they come in below expectations, GBP EUR is likely to advance further.