GBPEUR Moves Higher After European GDP

The GBPEUR exchange rate is 0.14% higher on Friday after the release of growth figures for the first quarter in the Eurozone. The figures came in around expectations and traders then used that to boost the pound, which will outperform on growth this year.

GBPEUR trades at the 1.1515 and next week will see the Bank of England’s latest monetary policy meeting.

No euro boost from growth

The euro failed to get a spark from GDP growth figures after they came in near market expectations. Germany and Italy also released their flash GDP Q1 results with both showing a loss for the quarter and this has helped to boost the pound after the UK economy grew in Q1 and is now reopen.

The Eurozone number was also slightly better with a loss of 0.6% for the first quarter. Core inflation was also seen for the euro and this came in at 0.8% which was at expectations.

The UK economy is set to grow fast this year at between 6-7% this year and there is no way that the Eurozone will get near this. It is surprising that the GBP v EUR is not trading at a higher price, with the pair still at a discount from the days of the referendum.

The two economies have followed the same economic path and it is looking like the British economy will be in better shape after the year is out.

The GBP v EUR sold off recently as large traders unwound their UK growth bets over reopening fears, but they may have right in their assumptions. The European economy is grudgingly reopening but will play catch up all year to the UK.

Tapering could pressure BoE on May 6th

The Bank of England will meet on Thursday to announce its latest interest rate decision and monetary policy and some analysts are seeing an early winding down of the assets that the BoE has been purchasing since the pandemic began.

An analyst at Scotiabank said:

“The BoE’s meeting a week from now comes into focus with economists mixed over whether the bank will tee up a reduction in its rate of asset purchases – with some even expecting such a move to be announced next week.”

Any move to reduce asset purchases would be the foundation for an interest rate increase and is a sharp u-turn from the talk of negative interest rates only a few months ago. Analysts at investment bank Standard Chartered were more cautious and said:

“Given the size of the UK’s output gap, the likelihood that unemployment still heads higher later this year as government employment support is withdrawn, and risks associated with new, we still expect the BoE to be largely focused on a return to full employment”.

The GBPEUR has resistance 1.18 which was the early-April high. Support levels for euro gains would be at 1.1280, but the euro is lacking good news.

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