The GBP to EUR exchange rate was weaker for a second week after sterling failed to bounce on positive GDP readings. The previous week had seen traders bail out of the British pound after the Prime Minister squashed any dreams of holidays abroad or a faster reopening. There was no data to move the euro and the economy is still going to lag the UK this year, but the bears won on the week.
The GBP to EUR was trading below the 1.15 level on Friday after early week bounces in the pound were surrendered.
UK GDP Can’t Rescue the Pound
The latest GDP update for the pound saw growth returning to the economy with a 0.4% reading for February. The economy was helped by a recovery from January’s dismal trade figures after delays in implementing the last-minute Brexit agreement at customs.
The UK also saw a move to the next phase of its reopening this week as hairdressers and outdoor dining returned. The International Monetary Fund (IMF) upgraded its UK growth forecast to 5.3% growth in 2021, but that was ahead of the latest figures. The IMF prediction would see the UK as the fastest-growing G7 country for the year.
The third lockdown created a lot of damage however, January’s drop was revised higher from -2.9% m-o-m to -2.2%. The UK GDP is now -7.8% below the pre-virus levels compared to analysts expectations of -8.6%. The worst-hit sector was the services again, which was 8.8% below its pre-virus mark. The sector grew only 0.2% in the month with shops still shut, but services PMIs and re-hiring seen last week could point to better days ahead.
Change at the BoE, European Inflation Suppressed
Central bank news this week saw the Chief Economist of the Bank of England, Andy Haldane resigning to head the RSA. Haldane will leave after the June central bank meeting and with the board member’s exit, the bank will lose one of its more outspoken, and hawkish members.
The pound was weaker on the news as traders realised one of the voices who believed in inflation would be leaving. It’s even possible that his recent comments about an “inflationary tiger” being unleashed, upset the bank’s governor. The global central banks have been keen to play down the market’s inflation expectations, so his timing wasn’t ideal.
German inflation on Thursday came in as expected on both figures and the country’s ongoing lockdown was the cause. The country’s health minister Jens Spahn was calling for another lockdown on Thursday, which could spell danger for the euro bulls.
The GBP v EUR exchange rate moved through the 1.15 figure on Friday after a big jump in the EU trade balance. Inflation was also the same as analysts’ predictions, but the trade figures showed a 17.7bn euro surplus. This was still 5.5% lower than a year ago before the virus hit.
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