Easing Economic Growth Paints Gloomy Picture for the Bloc – EUR/GBP Exchange Rate Forecast
The outlook for the Euro to Pound (EUR/GBP) exchange rate grew a bit gloomier on Wednesday as markets responded to a marked fall in the bloc’s latest GDP results.
According to Eurostat, the bloc’s overall economy grew year-on-year by 2.5% in Q1 2018, down from the previous period’s 2.7% climb but consistent with forecasts.
On a quarter-on-quarter basis GDP also eased, this time from 0.6% to 0.4%.
This poor result was largely due to cold weather, a historically severe flu season in Germany and ongoing worker strikers in France (to name a few variables).
Moving ahead, however, some of these factors could reverse in Q2.
Stephen Brown from Capital Economics reflected this sentiment, stating:
‘We suspect that consumption growth will pick up in Q2 and help to push quarterly GDP growth back to around 0.5% of 0.6%’.
Nonetheless, this news weighed on the single currency, with demand limited by concerns that it could keep the European Central Bank (ECB) dovish into 2019.
Bank of England Rate Decision Looms – What can we expect for Pound (GBP) Exchange Rates?
Next week will feature the UK’s highly anticipated rate decision, with markets currently divided on how the Monetary Policy Committee (MPC) will vote.
Market expectations of a rate rise – as measured by swap markets – have plummeted from 50% to less than 20% in recent days, with the UK’s below-forecast GDP print leaving investors sceptical that a hawkish move will occur.
Whilst wage growth has accelerated and consumer price inflation remains above target levels, recent weak economic growth could cause MPC members to become skittish; concerned that the economy might be too fragile to handle a rate rise.
In the meantime, tomorrow’s Markit purchasing managers’ index (PMI) on British services could add, or detract from said expectations, with a robust performance in the UK’s largest sector liable to kick hawkish expectations back up a notch.
Eurozone Consumer Price Inflation on the Horizon – Euro Pound (EUR/GBP) Exchange Rate likely to face Pressure
The Euro Pound (EUR/GBP) exchange rate could extend its fall on Thursday as markets react to the latest Eurozone consumer price inflation results.
Analysts currently expect inflation to ease year-on-year in April from 1.4% to 1.3%, even further away from the central bank’s target range.
This is pertinent in that the European Central Bank (ECB) continues to assert that their bond-buying programme could be extended beyond September 2018 if inflation doesn’t begin to consistently move towards target levels.
Combined with today’s marked fall in economic growth, it could also delay tighter monetary policy measures until well into 2019.
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