GBP/EUR Exchange Rate Muted ahead of Key GDP Release
The Pound to Euro (GBP/EUR) exchange rate is subdued this morning as markets brace for some gloomy GDP figures from the UK tomorrow.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1108, virtually unchanged from this morning’s opening rate.
Grim UK GDP Figures to Reverse Pound’s (GBP) Recent Rally?
While the Pound (GBP) has found room to run in recent weeks, there is a major risk of Sterling relinquishing a good portion of these gains this week on the back of some sobering GDP figures.
Economists forecast the UK’s preliminary GDP estimate for the second quarter will report that the UK economy suffered a record contraction, with growth shrinking over 20% and plunging the country into a deep recession.
In fact, the UK is expected to have suffered the largest contraction of growth of any other G7 nation.
The UK’s dramatic slump in comparison with its peers looks to have been driven by the government delayed lockdown announcement, which in turn have led to a later lifting of restrictions and reopening of the economy.
While the Bank of England (BoE) recently revised its growth forecast for 2020 up from –14% to –9.5% analysts believe there is limited chance for a V-shaped recovery, given that coronavirus risks still remain.
Garry Young, deputy director of the National Institute of Economic and Social Research, said:
‘A rapid V-shaped recovery is a possible outcome still, but all the risks seem to be to the downside. If we get another wave of the virus and have to do more widespread lockdowns, that’s going to knock the economy off that V path.’
The Office for National Statistics (ONS) will publish the UK’s latest GDP release on Wednesday.
Euro (EUR) Facing Pressure from a Resurgent US Dollar (USD)
At the same time, the Euro (EUR) is facing renewed pressure this week as the single currency’s negative correlation with the US Dollar (USD) sees it dented by a stronger ‘Greenback’.
The US Dollar has begun to mount a comeback in recent days as demand for the safe-haven currency is underpinned by souring risk sentiment amidst an impasse in Washington over the next round of US fiscal stimulus.
This has seen the Euro unable to find support this morning in spite of the latest ZEW economic surveys showing that economic sentiment in Germany surged to a new 16-year high in August as hopes for a speedy economic recovery continued to grow.
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