GBP/EUR exchange rate week review: pound slumps versus euro following downbeat GDP print
UK economic concerns applied downward pressure to the pound, causing it to decline in value against the euro.
Monday
The pound euro (GBP/EUR) exchange rate edged above the 1.16 benchmark after Prime Minister Keir Starmer’s publicly backed Chancellor Rachel Reeves. This provided the UK currency with some support following last week’s losses.
However, the pound’s upside was limited amid ongoing concerns regarding the UK’s fiscal outlook, following the government's decision to postpone welfare reforms.
The single currency was dented by escalating reservations about the EU providing unequivocal support for a trade agreement with the US.
This was compounded by a disappointing retail print for the Eurozone, which showed sales in the bloc suffered their sharpest fall in almost two years in June.
Tuesday
The pound dropped below the 1.16 benchmark against the euro after the OBR's latest report raised concerns about the UK deficit. The nation’s fiscal watchdog warned that public finances are vulnerable, and debt could reach 270% of GDP by the 2070s under current policies.
The euro faced headwinds after German exports and imports dropped sharply in May. This was followed by comments from the country’s finance minister Lars Klingbeil, who stated that the EU may retaliate against the US if it fails to agree a fair trade deal.
Wednesday
The pound euro rate stabilised. Bank of England Governor Andrew Bailey's remarks on the UK's geopolitical vulnerability had little effect on the currency.
The single currency softened amid ongoing uncertainty over transatlantic trade. Despite EU leaders' optimism about a US deal by the end of the month, euro investors were frustrated by slow progress.
Thursday
The pound continued to trade without a clear direction against the euro as a lack of notable data exposed it to recent indicators around economic and fiscal risks in the UK.
The euro weakened despite optimism over a possible EU-US trade deal. A risk-on market mood reduced demand for the safer single currency, and a rebound in the dollar added further pressure.
Friday
The pound plummeted to around 1.153 versus the euro after data showed a second month of decline for the UK economy.
GDP shrank again in May, slipping 0.1% on the month and missing forecasts for a small rebound. The consecutive monthly declines, following April’s 0.3% drop, ramped up fears that the country could be on the verge of recession.
Looking ahead
UK inflation is expected to have risen again when consumer price index (CPI) data for June is released on Wednesday. The UK’s core CPI is forecast to have risen by 3.5% over the 12 months to the end of June – 0.1% higher than May’s 3.4% figure for the previous 12-month period. A slight uptick in inflation could support the pound if it dampens interest rate cut expectations.