The EURGBP exchange rate has pulled back from the 0.8685 level for a second day after the latest UK GDP growth release showed an improvement for the country. The market will now await German and European ZEW sentiment surveys.
The EUR to GBP rate is trading at 0.8650 and could see lower levels if the European business indicators are more pessimistic.
UK GDP Grows Despite Lockdown
The UK economy expanded by 0.4% in February, which comes after a 3% drop in January when a stricter lockdown began. The numbers were better than expected with boosts from the manufacturing and construction sectors, while the January export slump related to the enforcement of a last-minute Brexit was also a factor.
The February reading puts the UK economy almost 8% lower than the pre-virus growth levels, but the economy started to reopen yesterday, and this should boost activity once more. ING markets expect growth to be around 5% in the second quarter, but that could be increased by the level of consumer activity in the weeks ahead, UK households had built up record amounts of savings and there will be some desire to continue saving after the recent economic shocks, but with summer holidays looking like a distant dream for many, domestic spending will see a boost.
The UK figures come on the back of an IMF upgrade for 5.3% UK growth in 2021 and these latest figures could nudge that higher, whilst last week’s services PMIs and construction activity were also a boost.
UK to EU trade improved in February with UK exports to Europe recovering a big share of the January declines. Imports from Europe stayed at lower levels, and this is likely due to fourth quarter stockpiling ahead of the Brexit deal.
ZEW Sentiment Will be Next Guide
The Eurozone and German economies will see the release of ZEW economic sentiment surveys this morning and the survey of business owners could be affected by the vaccine rollout and continued lockdowns.
Investors appear to be giving the EU some benefit of the doubt in the economic growth outlook, but today’s UK figures are another sign that the British economy is growing into its reopening while the EU still grapples with vaccines and a third wave of the virus.
The UK will allow its consumers to get back and boost the services sector, while manufacturing and construction have also ticked higher. Employment data has also been positive and the outlook for travel means that UK households are probably going to spend any pent-up savings at UK establishments, which will starve the European tourism scene for another year. The European Central Bank are also more likely than the BoE to require further stimulus which will weigh on the single currency.
EURGBP is 0.20% lower in early trading on Tuesday and any signs of weakness in the ZEW survey could hurt the euro once again. Get in touch using the form below to discuss how your upcoming euro exchange could be impacted.
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