- Pound (GBP) rose last week but fell on Friday
- The growth outlook remains weak
- Euro (EUR) rose on Friday even as
- German inflation cooled by more than expected
The Pound Euro (GBP/EUR) exchange rate is falling at the start of the week after modest gains last week. The pair rose 0.44% in the previous week, settling on Friday at €1.1535 and trading in a range between €1.1485 – €1.1589. At 06:35 UTC, GBP/EUR trades +0.5% at €1.1556.
The pound rose against the euro in the previous week but fell against the euro on Friday, despite UK GDP data showing that the UK economy grew in line with expectations in the second quarter. The data also showed that the economy made a stronger recovery from the pandemic than initially expected, as revisions to UK GDP showed that the economy was 1.8% above pre-pandemic levels at the end of the second quarter of this year.
However, despite this encouraging news, there was little in the figures to change current expectations of a more depressed growth picture ahead. The UK economy is expected to enter recession in the winter months triggered by the sharp rise in interest rates.
The Bank of England left interest rates on pause in September after 14 straight rate hikes, taking the benchmark level to 5.25%.
Today attention will turn to UK manufacturing PMI data, which is expected to confirm the final reading of 44.2 in September up from 43 where level 50 separates expansion from contraction.
Weak data would add to evidence that the UK economy likely contracted in the July to September quarter.
The euro managed to push higher on Friday despite mixed data. On the one hand, German retail sales slumped by 1.2% month on month, down from 0.8% decline in July and well below a 0.5% increase expected.
Meanwhile, eurozone inflation also cooled by more than expected, dropping to 4. 3% year on year in September, down from 5.2%, to an almost two-year low thanks to a drop in energy costs, although services were also slowing sharply.
Meanwhile, core inflation, which strips out energy and food, came in at 4.5% year on year in September, down from 4.3% in August at a one-year low, supporting expectations that the ECB will pause interest rate hike.
Today, the focus is turning to eurozone manufacturing PMI data, which is expected to confirm the preliminary reading of 43.4, down from 43.5.
