The Pound to Euro (GBP/EUR) exchange rate drifted lower at the close of last week as the UK’s disappointing trade data triggered Sterling losses.
At the start of the week the Pound enjoyed a modest rebound, pushing back above 1.26 against the Euro. Unexpectedly strong UK Services PMI initially bolstered confidence in the nation’s growth prospects, but as the week progressed the National Institute of Economic and Social Research released less encouraging GDP figures for the three months to July.
The UK economy expanded by 0.6%, slower than the 0.8% growth registered in the three months to June.
According to NIESR, the UK economy is growing at its slowest pace for a year due to a cooling in the manufacturing sector.
ING economist James Knightley said this of the growth report; ‘In general it is pretty disappointing stuff and highlights the lack of rebalancing away from services to more production-led growth. Nonetheless, given the near-universal strength seen in the manufacturing surveys the true picture remains unclear.’
The Pound to Euro (GBP/EUR) exchange rate faltered after the growth data was published and on Thursday the Bank of England’s dull interest rate decision had little impact on Sterling.
Meanwhile, fundamentals from the Eurozone were very mixed, with positives like stronger-than-anticipated year-on-year retail sales figures for Germany being counteracted by developments like the news that Italy slipped back into recession.
The European Central Bank also stocked quantitative easing speculation at its latest policy meeting.
However, on Friday the Pound to Euro exchange rate consolidated declines as a slide in exports was shown to have pushed the UK’s trade deficit to a five-month high in June. The level of exports to non EU-nations slumped to an almost three-year low, with the total goods trade deficit widening from 9.2 billion Pounds to 9.4 billion Pounds – far exceeding economists’ expectations for a shortfall of 8.8 billion Pounds.
According to senior economist Martin Beck; ‘The [trade] problem is largely out of the UK’s hands […] This is likely to remain the case for the foreseeable future. Sterling rose further in July while the Eurozone economy [the UK’s main trading partner] looks set for little or no growth in Q2’.
Although separate UK figures showed a rebound in the UK’s construction sector, the Pound Sterling to US Dollar (GBP/USD) exchange rate also fell on Friday, hitting an eight-week low as the situation in Iraq drove investors towards the safe-haven US Dollar.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast
Today the Pound Sterling to Euro exchange rate is likely to trade in a narrow range due to a lack of particularly influential economic news for either the Eurozone or UK.
Some modest movement could be caused by the UK Lloyds Employment Confidence index, but investors are likely to remain on hold until Tuesday, when the British Retail Consortium publishes its like-for-like sales report and the ZEW Economic Sentiment surveys for Germany and the Eurozone are released. If the ZEW reports show improved confidence it could give the Euro a little head start on the Pound before the week’s main UK news (domestic employment figures) are published.
Conversely, signs that geopolitical tensions, ECB stimulus and French growth concerns dampened the level of confidence in the Eurozone could see the Pound Sterling to Euro (GBP/EUR) exchange rate advance on Tuesday.
UPDATED 10:15 GMT 11 August, 2014
As the week kicked off the Pound Sterling to Euro (GBP/EUR) exchange rate was trending 0.2% higher.
The UK’s Lloyds Employment Confidence Index was shown to have jumped from 1 to 6 in July, but the data had little impact on Sterling.
A lack of economic news for the Eurozone could restrict GBP/EUR movement as the day progresses, but investors will also be looking ahead to tomorrow’s Eurozone ZEW data.
The German Economic Sentiment index is expected to have declined from 27.1 to 17.0 in August, and the nation’s Current Situation measure is believed to have drifted from 61.8 to 54.0.
If these drops do occur it would give the Pound the opportunity to strengthen against the Euro.
The Pound Sterling to Euro exchange rate is currently trending in the region of 1.2535.
Stay tuned for the latest exchange rate forecasts!
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