GBPEUR: UK and Europe Get a Growth Boost

GBPEUR: UK and Europe Get a Growth Boost

The GBPEUR exchange rate is 0.11% lower at midday on Wednesday after the UK saw better than expected GDP figures, while the EU Commission raised its growth forecast for the European economy. The British pound has bounced back from election jitters to score big gains on the week and will now target the 2021 highs.

GBPEUR is trading at 1.1650 and the yearly highs are at 1.18 for sterling versus the euro.

UK GDP figures better than expected

The UK economy saw the latest update for the GDP growth figures and the economy is set for a near-5% bounce in the second quarter. The quarter to March registered a better than expected -1.4% print versus the expected -1.7% reading and that has boosted the pound v euro forecast again.

ING bank saw the economy moving to pre-virus levels by the end of 2021 alongside the BoE, while export disruptions have also soothed. The bank were still cautious in some areas such as spending, saying:

“…pent-up demand is still fairly uncertain. Savings levels have risen and some of this buffer will undoubtedly get spent, though these cash balances have disproportionately benefited higher earners who tend to spend a smaller proportion of income gains.”

On exports they said:

“Exports to the EU – arguably the better barometer of difficulties, given most of the frictions so far have been on the EU-side – have recovered close to where they were at the tail end of last year. Imports are still lagging, but equally, there was evidence of stockpiling in 4Q last year, which distorts the picture.”

The UK economy is still outperforming most in the G7 and we asked in our articles last week how long the market would underestimate the pound’s GDP advantage versus the euro. Once the election fears dissipated, sterling has charged higher.

European Commission updates EU growth

The European Commission updates growth for the Eurozone in its latest quarterly outlook.

Eurozone 2021 GDP growth has been raised to 4.3% from 3.8% previously, while the EC sees Eurozone 2021 inflation at 1.7%. A pickup in vaccinations is said to be the driver with the economy expected to be at pre-virus levels in Q4.

The German economy has been boosted by 800k to 1 million shots per day of the virus vaccine and the country’s economy saw optimism filter through into ZEW sentiment figures yesterday, with the index at twenty-year highs.

Despite the upgrade, the British economy is on the path to 7.2% growth and is getting an edge in the currency market. The UK economy has largely reopened and will get a boost in coming months from the return to hospitality and retail spending in the last month. The UK will also see travel return in a week’s time and only Portugal has made the green list out of all of the European tourist countries.

GBPEUR has the upside ceiling at 1.18 and that will be target for pound bulls. The 1.15 level was supported this week by sterling traders and that will be support for the euro to target.