- Pound (GBP) falls after UK GDP falls -0.3% QoQ
- Investors price in 3 rate cuts this year
- Euro (EUR) rises after several ECB officials speak
- Eurozone avoids recession in Q4
The Pound Euro (GBP/EUR) exchange rate is falling for a second straight day. The pair fell -0.36% in the previous session, settling on Wednesday at €1.1721 and trading in a range between €1.1698 – €1.1712. At 13:00 UTC, GBP/EUR trades -0.3% at €1.1677.
The pound is falling after the UK economy fell into a technical recession at the end of last year.
According to data from the Office for National Statistics, UK gross domestic product shrank by 0.3% in the final three months of 2023, marking the second straight quarterly contraction. Expectations had been for a contraction of 0.1% from October to December.
Delving deeper into the numbers, all three main sectors of the economy contracted with a 0.2% contraction in services or 1% contraction in production and a 1.3% contraction in output.
The data comes after UK inflation cooled by more than expected earlier in the week.
In reaction to the cooler-than-forecast inflation and weak growth, traders are fully pricing in three Bank of England rate cuts in 2024.
Bank of England policymaker Megan Greene gave a speech, and while she described monetary policy as restrictive, she also highlighted the persistence of UK wage and services price pressure, which means that policy will need to remain restrictive for some time in order for inflation to return to target sustainably.
The euro is rising against the pound and is attempting to push higher against the US dollar, recovering from a three-month low after statements from various European Central Bank officials.
ECB president Christine Lagarde said on Tuesday that inflation was gradually returning to its target level, but the central bank still needs further evidence, particularly with regard to wages, before it would consider cutting interest rates. Her comments were echoed by policymaker Pablo Hernandez de Coz, who said that the precise timing of any rate cut remains uncertain.
Data this week confirmed that the eurozone economy managed to avoid recession at the end of 2023, although the outlook remains gloomy after PMI data at the start of 2024 has remained below the key fifty level.
