EUR/GBP steadies near 0.8700 ahead of UK economic data
- EUR/GBP remains steady as traders adopt caution ahead of UK GDP and Industrial Production data releases.
- Mixed UK labor data for the three months ending in August has bolstered the BoE dovish bets.
- ECB policymaker Primoz Dolenc stated that interest rates should remain unchanged unless new economic shocks emerge.
EUR/GBP moves little after registering losses in the previous session, trading around 0.8690 during the Asian hours on Thursday. The currency cross remains silent as traders adopt caution ahead of the release of the United Kingdom (UK) Gross Domestic Product (GDP) and Industrial Production data for August later in the day. The seasonally adjusted Eurozone Trade Balance data will also be eyed.
UK Gross Domestic Product is expected to climb by 0.1% month-over-month (MoM) in August, against the 0% reading in July. Meanwhile, Industrial Production is expected to rise 0.2% MoM after July’s 0.9% drop, with annual growth up 0.6% versus 0.1% previously.
The downside of the EUR/GBP cross could be restrained as the Pound Sterling (GBP) may face selling pressure as BoE dovish bets escalated after the release of the UK labor market figures for the three months ending in August. Money markets are pricing in a 46-basis-point (bps) interest rate reduction by the BoE in the remaining two monetary policy meetings this year, per Reuters.
The EUR/GBP cross may gain ground as the Euro (EUR) could receive support from the cautious comments from the European Central Bank (ECB) policymaker and Slovenia's central bank acting Governor Primoz Dolenc, who said on Thursday that the central bank should hold interest rates steady unless new shocks hit. Dolenc added that inflation risks are balanced around the baseline scenario and current policy stance, neither fuels inflationary pressures nor restricts economic growth.
The Euro may also draw support from the rising odds of French Prime Minister Sébastien Lecornu surviving the no-confidence vote by the cabinet, following the suspension of the controversial pension reform until at least after the 2027 presidential elections.
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.