Pound To Euro Exchange Rate Flattens As UK Economy Stalls (2024)

The Pound Euro (GBP/EUR) exchange rate traded sideways on Wednesday, following news that the UK economy flatlined in April.

At the time of writing, GBP/EUR traded at around €1.1862, displaying little movement from Wednesday’s opening rates.

The Pound (GBP) treaded water during Wednesday’s session, following the publication of the latest UK GDP growth rate.

In April, economic activity within the UK stalled, with the measure showing 0% growth on a monthly basis. This marked a clear slowdown from March’s GDP growth rate of 0.4%.

The stall in economic growth was suggested to be caused by poor weather in April, which impacted construction work across the country and prevented UK consumers from heading to retail stores.

Hailey Low, associate economist at the National Institute of Economic and Social Research, commented: ‘Today’s subdued GDP figures signal that the UK remains fragile on its route to a sustained economic recovery. However, the broader perspective remains an economy grappling with stagnation as low productivity and high economic inactivity curtails growth potential.’

Furthermore, the data called into question the specific timing of an interest rate cut from the Bank of England (BoE).

Rob Wood, Chief UK Economist at Panetheon Macroeconomics, commented: ‘These growth data further complicate the MPC’s upcoming interest rate decisions. Rate-setters will keep rates on hold in June, but now a cut in August looks a little less likely.’

As such, this trepidation may have kept Sterling afloat. However, the majority of analysts now expect the Bank of England to cut interest rates in August, after the UK’s general election.

The Euro (EUR) treaded water during Wednesday’s session, following confirmation that German inflation accelerated in May.

The finalised German headline inflation rate increased to 2.4% in May, as preliminary readings suggested, which marked the first increase in five months.

Service cost and food prices had continued to rise in the Eurozone’s largest economy, which prompted bets that the European Central Bank (ECB) may keep interest rates unchanged for longer than first thought.

Ruth Brand, President of the Federal Statistical Office, commented: ‘The inflation rate is slightly up again, mainly due to the continued increase in service prices. By contrast, energy and food prices have had a dampening effect on overall inflation since the beginning of the year.’

Bets that the ECB won’t cut interest rates again in the immediate future served to keep the common currency afloat during Wednesday’s session.

Looking ahead for the Euro, the core catalyst of movement is likely to be the latest Eurozone industrial production data, due for publication on Thursday.

On a monthly basis, production is forecast to have slowed from a 0.6% increase in March to a 0.2% increase in April. This could pressurise the Euro by suggesting that economic activity is weakening across the bloc.

This data is then followed by a slate of speeches from European Central Bank policymakers. Most significantly is a speech from ECB President Christine Lagarde.

Following the central bank’s recent interest rate cut, it has elected to remain quiet about the timing and likelihood of future interest rate cuts. If President Lagarde convincingly maintains the silence around future policy loosening, the Euro could strengthen against its peers.

However, if hers and other policymakers words are unconvincing to markets, the Euro may struggle to find clear support from investors.

For the Pound, data releases are few and far between through to the end of the week’s session. This could prevent Sterling from attracting much in the way of support from investors.

However, a shift towards upbeat trading conditions could benefit the Pound due to its increasingly risk sensitive nature, and may lift it above the safer Euro.