The GBP EUR exchange rate continued from last week’s strong rally after better-than-expected GDP growth figures boosted the pound sterling. The UK leadership race inches closer to completion, with Rishi Sunak and Penny Mordaunt said to be leading. However, both Mordaunt and Liz Truss are in a position to defeat the former Chancellor in a run-off final vote.
The GBP v EUR pushed to the 1.1900 level this week but resisted.
Growth figures boost hopes for UK recession miss
The pound sterling boosted this week with higher GDP growth figures.
The UK economy improved by 0.5% for May, but underneath the headline was a boost related to “higher GP appointments”, pushing the dominant services sector by 0.4%. However, overall “consumer-facing” services dropped 0.1%, with the retail sales drop of 0.5% to blame.
The BRC retail sales barometer lowered this week, with sales at levels from the “depths of the pandemic”, as shoppers cut back on home-related purchases. International travel picked up in the services sector, which is likely why shoppers avoided furniture and computing items.
Manufacturing and construction were bright spots as the headwinds of the pandemic lockdowns continued to recede. Rising cases this week will not help the economic outlook. Health experts insisted the current wave would soon fizzle out, with business leaders also, but health experts said restrictions were not necessary due to the mild nature of the virus.
Thursday saw another vote in the Tory leadership and Prime Minister race after some big names departed early. Rishi Sunak and Penny Mordaunt led the most recent vote, with Liz Truss coming third. However, the latter two were positioned to defeat Mr Sunak in a run-off vote amongst grassroots members. Jeremy Hunt complained of smear tactics against some candidates as he and Sajid Javid bowed out.
ZEW sentiment and inflation released for beaten-down euro
The euro currency reached parity this week with the US dollar for the first time since the early days of the single currency.
The US Federal Reserve raised interest rates aggressively, attracting bond buyers to the greenback. A looming gas crisis this winter also weighs on the euro. The Nordstream pipeline shut down for annual maintenance, but there are fears that it will not come back online on July 21. That led the CEO of Shell, Ben Van Beurden, to warn of potential rationing of European energy this winter.
German inflation came in lower at 7.6%. This figure was in line with analysts’ expectations, helping to offset gloomier figures for the ZEW business sentiment surveys in Europe and Germany.
The next meeting of the ECB Governing Council comes this week with the bank set to raise interest rates for the first time since 2011, which will also be on July 21.
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