The GBPEUR exchange rate failed to make any meaningful gains this week above 1.15 despite talk of the UK seeing its strongest growth figures since 1941. Traders are still focused on the short-term and are allowing the euro to bask in the vaccine catch-up story. Today will see consumer confidence figures from Germany, although the country is still facing restrictions and recent virus cases have been bleak, which could weigh on sentiment.
The GBP v EUR is trading near 1.1490 in early Wednesday trading and the rest of the week will have bigger European data.
UK growth could be strongest since 1941
Respected economists at the EY ITEM Club have predicted that Britain will see its strongest GDP performance since the second world war. The statements come as US investment bank Goldman Sachs also had a bullish outlook for the country with predictions of “striking” growth that could be 7% or above.
The UK economy did see the largest GDP fall in 300 years with a 9.8% slump in 2020, but the projections put the country in a position to outperform all G7 countries the GBP to EUR rate may be undermining sterling and giving too much benefit to the Eurozone. That could be cleared up this week as GDP flash estimates for Q1 will be seen by Germany, Italy, and the wider Euro Area.
The EY Item analysts had previously expected UK growth to be 5%, whilst the Bank of England saw it at the same figure. A fast vaccination programme gave the country a lift with the International Monetary Fund projecting 5.3% for the UK.
The actual figure will take some time to play out but the economy is moving back to a full reopening and the months ahead will see the depth of the bounce. There are also issues surrounding the unemployment rate, with the furlough scheme seen to be propping up larger jobs losses.
Inflation will follow the consumer check
The European data will pick up steam tomorrow with the release of German inflation figures and employment numbers. These should give an update on the hiring in the German economy as it inches towards reopening. Businesses are maybe not confident enough to hire with the Chancellor and Health Minister both talking about further lockdown measures since Easter. The virus situation in India has been grabbing headlines and if it appeared in the likes of Germany then it would really sap morale.
The Friday data on the latest euro growth figures will show the pace of activity in the German, Italian, and Eurozone economies. Italy is set to reopen some of its economy in what Prime Minister Mario Draghi called a “gamble”.
GBPEUR could look to move to the 1.14 level this week if the German numbers are better, however the GDP on Friday will be the key release and will show if the European economy is being accurately priced versus UK growth.