British Pound to Euro Exchange Rate Falls Back on Underwhelming UK Growth Stats

The Pound to Euro exchange rate slipped back from weekly highs on Friday, particularly after Britain’s final Q4 Gross Domestic Product (GDP) results failed to meet year-on-year expectations.

GBP EUR began this week trending at the level of 1.1545. After a brief fall to a two-week-low of 1.1451, the pair recovered in the second half of the week and even hit a high of 1.1700 on Friday morning before trending in the region of 1.16 for most of Friday’s European session.

Pound (GBP) Sheds Best Levels as Investors React to Underwhelming UK Growth

It’s been a busy week for Pound traders, but despite this week finally seeing the start of the Brexit process it’s been disappointing UK data that has dislodged the British currency from its highs.

After hitting a near-month-high of 1.17 on Friday morning, GBP/EUR was knocked back by psychological resistance and continued to fall when the day’s key UK data was published.

Britain’s final Q4 2016 Gross Domestic Product (GDP) figures were slightly disappointing. While the quarterly result improved to 0.7% as expected, the yearly figure failed to come in at the forecast 2%, instead printing at 1.9%.

Not only this, but the Q3 2016 figure was revised down from 0.6% to 0.5% and the previous yearly figure was revised down from 2.2% to 2%.

As Britain’s economy appeared to be weaker in the second half of 2016 than previously thought, concerns grew that the economy would not be as resilient as hoped in 2017 during the Brexit process.

The day’s other ecostats were mixed. GfK’s March consumer confidence came in at -6, better than the predicted -7 but still indicating that confidence in Britain was falling.

Euro (EUR) Limp amid Heavily Mixed Ecostats

The Euro struggled to capitalise on the Pound’s weakness on Friday, as this week’s Eurozone ecostats were disappointing enough to notably dampen market hopes for a more hawkish European Central Bank (ECB).

Thursday saw the publication of preliminary March Consumer Price Index (CPI) stats for Germany, which slipped from 0.6% to 0.2% month-on-month and from 2.2% to 1.6% year-on-year.

Other German ecostats published on Friday morning were comparatively better. February retail sales plummeted year-on-year but were much better than expected month-on-month.

Meanwhile, Germany’s March unemployment rate unexpectedly improved from 5.9% to 5.8% - the lowest unemployment rate on record since the reunification of Germany.

However, the Eurozone’s preliminary YoY inflation figure for March also disappointed, slumping from 2% to 1.5% and missing the projected slip to 1.8%.

This increased market concerns that the ECB and its President Mario Draghi would no longer feel pressure to tighten Eurozone monetary policy in the short to mid-term future. As ECB tightening bets faded, so did the Euro.

GBP/EUR Forecast: Final March PMIs Ahead

Next week will see the publication of Britain’s March PMIs from Markit. Markit will also publish its revised Eurozone PMIs for the month.

With April underway, more data from March will begin to be published which could shift the short term outlooks for GBP/EUR. With Brexit negotiations unlikely to begin in full until May or June, GBP/EUR is likely to react most to data in the coming weeks.

Polling data for the French Presidential election will also influence Euro movement, as the first round of the election will take place less than a month from now.

Monday will see the publication of Britain’s manufacturing PMI for March, as well as the Eurozone’s February unemployment rate and revised March manufacturing PMI.

Tuesday will follow with Eurozone retail sales stats for February and Britain’s March construction PMI. Then on Wednesday, March services and composite PMIs will be published for Britain and the Eurozone.

Key data due for publication towards the end of the week includes Britain and Germany’s February trade balance updates.