EUR GBP Looks for a Low at April Support

The EUR GBP exchange rate was trading above the April lows after the pair saw new lows for the year recently. The euro is looking to carve out a double bottom in price as sterling becomes a victim of its own rally recently. GDP figures matched expectations but missed the BoE target by two-tenths of a percent.

The EUR to GBP rate is trading at 0.8492 and will need some positive euro news, or negative sterling twists to secure a low.

Consumers power the UK economy in the second quarter

The UK economy saw growth of 4.8% for the second quarter as consumers roared back to life and boosted the country’s beaten-down services sector. Shops, pubs, and restaurants all reopened their doors in the phased lifting of virus restrictions and that was enough to power the output higher.

The 4.8% reading was predicted by analysts but in last week’s Bank of England rate meeting, they saw a 5% return for the economy.

Capital Economics said the latest figures placed the UK on track for a recovery to pre-pandemic levels as soon as October and it was possible the economy could emerge from the pandemic “without much scarring”.

But the British Chambers of Commerce warned of a risk of complacency amongst UK policymakers. The BCC saw a “robust rebound” but cautioned that “business investment remains well short of pre-pandemic levels” and this could represent a weak point of the recovery, “limiting UK productivity and competitiveness”.

“Strong growth in the second quarter may be the high point for the UK economy with economic activity likely to moderate in the third quarter as staff shortages, supply chain disruption, and consumer caution to spend limits any gains from the lifting of restrictions in July.”

Eurozone industrial output lower again

Industrial production fell 0.3% in June for the Eurozone as supply chain issues continued to hurt the sector. The vehicle sector continues to see the worst of the problem with semiconductor shortages leading to a sharp decline in production in recent months. Germany faces the biggest problem, with production declining by 1% while other large economies saw production increase. France and Spain saw growth of 0.4% and 0.1%, respectively, but the Netherlands and Italy were stronger with 3.3% and 1% growth in industrial output.

Data for the months ahead continue to show a strong inflow of new orders and the outlook for production will be tied to the supply constraints for longer.

For the third quarter, it could mean that the manufacturing contribution will be softer, but ING bank sees GDP growth for the eurozone to be 2% quarter-on-quarter. The European economy still lags behind the UK and should support the pound somewhat.

The EUR v GBP traded to the April yearly lows but is now trying to secure a low at that level with the pound may be seeing the peak of its recovery as cases rise again into the winter.

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