- Pound (GBP) pares losses from previous session after data pointed to a longer more drawn out recovery for the UK economy
- Investors look ahead to UK inflation data which is expected to increase 0.4% month on month
- Euro (EUR) advanced despite mixed data
- With no high impacting Eurozone releases expected, investors look towards ECB meeting on Thursday
The Pound Euro exchange rate trended gradually lower on Tuesday, settling -0.4% at €1.1019. At 05:15 UTC, GBP/EUR trades +0.2 at €1.1030.
The Budget of Office Responsibility warned that the UK economy could fall by as much as 14% this year if the coronavirus pandemic causes lasting damage to the economy. The warning for government forecasters came following GDP data which showed that the UK economy rebounded by a very sluggish 1.8% in May, following a -20.4% plunge in April. This means that the British economy is still a quarter smaller now than it was in February.
The troublesome numbers dragged on demand for the Pound on Tuesday.
Investors will continue to focus on the economic calendar with UK inflation data due to be released. Analysts are expecting +0.4% inflation month on month in June, as lock down measure eased and the economy slowly reopened. Annual inflation is expected to print at 1.2%. This is significantly down from the BoE’a target of 2%.
The Euro pushed higher on Tuesday despite a mixed bag of data. German ZEW economic sentiment data revealed that investor sentiment soured in July. The indicators dipped to 59.3, down from 63.4 in the previous month highlighting the rocky road to recovery ahead.
Broadly speaking Eurozone data has been upbeat enough over recent weeks to convince investors that the economic recovery in the region is progressing. Furthermore, the fact that the region has not seen a strong second wave of covid numbers, like in Australia or the US is also offering support to the common currency.
Today there is no high impacting Eurozone data. Instead investors will start looking ahead towards the European Central Bank’s monetary policy meeting. Analysts are not expecting the ECB to move on policy after adding €600 billion to the Pandemic Emergency Purchase Programme (PEPP) last month and amid tentative signs of economic recovery.
