- Pound (GBP) is falling after gains yesterday
- UK GDP 0.1% MoM in August, up from -0.1%
- Euro (EUR) rises amid political stability in France
- Eurozone trade fell to €1 billion
The Pound-Euro (GBP/EUR) exchange rate is falling, giving back some of yesterday’s gains. The pair rose 0.29% in the previous session, settling on Wednesday at €1.1509. It traded between €1.1464 and €1.1517. At 16:00 UTC, GBP/EUR trades -0.11% at €1.1495.
The pound as falling against the euro amid concerns over the UK economy ahead of next month’s budget.
Data showed that the UK economy returned to growth in August, with GDP rising 0.1% month on month after falling 0.1% in July. The data slowly indicates that the UK economy has grown, which will provide Chancellor Reeves with a modest boost as she prepares the challenging November budget.
The IMF yesterday said it expects the UK economy to be the second fastest within the G7, second only to the US. However, inflation is expected to be the highest within the group for this year and next.
Chancellor Rachel Reeves is widely expected to hike taxes and potentially cut spending as she attempts to repair public finances and address a significant fiscal shortfall estimated to be between £20 billion and £30 billion.
Meanwhile, the Bank of England isn’t expected to cut interest rates again until next year, given sticky inflation in the UK. However, fiscal concerns mean the pound is not benefiting from exit expectations that the Bank of England will cut rates at a slower pace.
The euro is rising, driven by renewed political stability in France. French Prime Minister Sebastien Lecornu survived two votes of no confidence in the National Assembly on Thursday after winning the crucial backing from opposition Socialist Party thanks to his promise to suspend President Macron’s contested pension reforms.
On the data front, the eurozone trade balance narrowed considerably in August to a €1 billion surplus in goods, down from €3.03 billion a year earlier. Exports fell by 4.7% and imports declined by 3.8%.