GBP/EUR: Euro Jumps vs. Pound As German Coalition Averts Collapse
  • Pound (GBP) edges lower
  • UK GDP Q2 to confirm 4.8% growth
  • Euro (EUR) remains strong supported by elevated German inflation
  • German retail sales & Eurozone inflation due

The Pound Euro (GBP/EUR) exchange rate is edging lower after solid gains in the previous session. The pair settled +0.5% on Thursday at €1.1629 as it extended the rebound from €1.1548 a two month low. At 05:45 UTC, GBP/EUR trades -0.07% at €1.1621. The pair is set to lose 0.4% across the week.

The Pound rebounded in the previous session after heavy selling earlier in the week. The Pound found support from data which revealed that the UK economy grew at a faster pace than initially estimated. The UK GDP for the April to June period jumped 5.5%, above the 4.8% preliminary estimate. The UK economy was no longer the worst performing economy across the second quarter compared to 2019. Italy now features below the UK within this comparison.

Whilst the second quarter was stronger than expected, the third quarter is likely to see growth slow substantially amid supply chain bottlenecks and labour shortages.

Earlier in the week Bank of England Governor Andrew Bailey said that he expected the UK economy to reach pre-pandemic levels of output in early 2022.

Looking ahead attention will be on UK manufacturing PMI for September, the final reading. This is expected to confirm the 56.3 preliminary print.

The Euro came under pressure following weaker than forecast German inflation numbers. German inflation soared to a 29 year high at 4.1% in September, up from 3.4% in August. The fact that inflation continues to rise is prompting some market participants to question whether inflation really is as transitory as the central bankers say it is.

Larges jumps in inflation are being seen across the bloc. Spain is also dealing with inflation at a 13 year high.

Looking ahead German retail sales figures will be closely eyed. Analysts are expecting a rebound in sales of 1.5% after slumping -5.1% month on month in August.

Eurozone inflation will also be under the spotlight with a rise to 3.3% year on year forecast. Meanwhile core inflation is expected to rise to 1.9%