– Written by
James Fuller
STORY LINK British Pound to Euro Forecast: Resilient UK GDP Keeps GBP Near 1.17
The Pound to Euro exchange rate (GBP/EUR) held close to 1.1700 after stronger-than-expected UK monthly GDP data reinforced confidence in the domestic economy.
Pound Sterling’s gains remained limited, but the Euro also struggled for support as elevated European gas prices and continued uncertainty surrounding Middle East energy supplies overshadowed improving Eurozone economic data.
GBP/EUR Forecasts: Holds Near 1.17
The Pound to Euro (GBP/EUR) exchange rate remained close to the 1.1700 area on Thursday as resilient UK growth data offered Sterling some support, while elevated European energy prices continued to limit demand for the Euro.
GBP/EUR had climbed to two-week highs close to 1.1720 earlier in the week before losing ground, with the pair trading around 1.1695 during Thursday’s session.
Key support remains around 1.1650, while major resistance is located just above 1.1800.
Overall risk appetite remained relatively firm, helping to provide some support for the Pound, although movements in global bond and energy markets continued to dominate sentiment.
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The latest UK growth figures were more encouraging than expected on a monthly basis.
UK GDP increased by 0.3% in June compared with forecasts for no growth, while May’s figure was revised to show that the economy stagnated rather than expanding by 0.1%.
The economy expanded by 0.4% during the second quarter, matching consensus forecasts and slowing from growth of 0.6% in the first quarter.
Services output increased by 0.4% during June, while production declined 0.2% and construction fell 0.1%.
The stronger June reading provided some reassurance over the UK outlook, although Sterling’s response was relatively muted as the quarterly figure had already been widely anticipated.
The Euro has struggled to gain sustained support despite generally resilient Eurozone economic data, with energy-market risks remaining an important headwind.
European natural gas prices were trading just below €60 per megawatt hour on Thursday, with the market still vulnerable to developments in the Middle East and disruption to LNG supplies through the Strait of Hormuz.
The Eurozone remains particularly sensitive to higher imported energy costs, increasing the risk that elevated gas prices will weigh on growth while simultaneously adding to inflation pressures.
Extreme temperatures across Europe have also reduced nuclear output and increased demand for gas-fired electricity generation.
French nuclear availability is expected to fall sharply on Friday as high river temperatures and low water levels restrict reactor operations.
Lower nuclear output also has implications beyond France, increasing the need for gas and coal generation across neighbouring markets.
Tom Marzec-Manser, director for European gas and LNG at Wood Mackenzie, commented; “Restricted nuclear capability is increasing the call for gas-fired generation, while demand for power is higher due to the heat.”
ING commented; “Better hard activity data and eurozone economic numbers generally surprising on the upside have failed to provide the euro with much of a lift.”
The bank added that unresolved tensions in the Gulf have kept European natural gas prices elevated and limited the Euro’s ability to capitalise on stronger economic data.
ING also noted; “In terms of geopolitics, there is very little clarity here, although the latest reports suggest Pakistan and Oman are managing to bring the US and Iran a little closer together.”
For GBP/EUR, the 1.1650 area remains the main downside support level.
A sustained recovery above 1.1720 would improve the short-term outlook and bring the 1.1800 area back into focus, while a break below 1.1650 would increase the risk of a deeper Sterling correction.
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TAGS: Pound Euro Forecasts
