GBP/EUR: Euro Jumps vs. Pound As German Coalition Averts Collapse
  • Pound (GBP) rose as UK recession fears ease
  • NIESR forecasts 0.2% growth
  • Euro (EUR) drifted lower despite hawkish ECB talk
  • German inflation is due

The Pound Euro (GBP/EUR) exchange rate is falling after three consecutive days of gains. The pair rose 0.35% in the previous session, settling on Wednesday at €1.1268, after trading in a range between €1.1220 – €1.1272. At 05:45 UTC, GBP/EUR trades -0.05% at €1.1262.

The pound pushed higher in the previous session as recession fears eased. The National Institute of Economic Research forecast that the UK economy will avoid a recession this year, which is two consecutive quarters of negative GDP growth. However, the widely respected think tank did say households would remain squeezed by high inflation, with many feeling like they are in a recession.

NIESR cut its GDP forecast for this year to 0.2% from 0.7% in its November forecast and sees growth of 1% in 2024, down from 1.7%.

The outlook comes as Prime Minister Rishi Sunak has said one of his main goals is to ensure inflation halves this year, which is in line with Bank of England forecasts.

Today the UK economic calendar is quiet for another session, so sentiment could be the biggest influence on the pound.

The euro drifted lower yesterday in a data quiet day as European Central Bank officials repeated well-known messages, which failed to boost the market. ECB’s Kazaks said that there was no reason to stop or even pause rate hikes after March. ECB President Christine Lagrde indicated in the last monetary policy meeting that the central bank was likely to raise rates by 50 basis points again.

Attention is now firmly on German inflation data, which is expected to show that inflation in the eurozone’s largest economy rose in January to 10% year on year, up from 9.6% in December.  The data comes after ECB governing council member Klaas Knot said that headline inflation in the region appears to have peaked but added that aggressive rate hikes could be needed into May is underlying inflation doesn’t ease.