- EUR/GBP extends its downward move and approaches 0.8425 in the European session on Thursday morning.
- UK GDP grew by 0.4% month-on-month in May after stagnating in April, better than expected.
- Increased bets on ECB rate cuts are weighing on the Euro and limiting the cross’s rise.
The EUR/GBP pair remains on the defensive around 0.8425 during the European session on Thursday morning. The pair is trading with slight losses following the monthly data on the Gross Domestic Product (GDP) from the United Kingdom.
The UK economy grew more than expected in May after stagnating in April, with GDP expanding by 0.4% month-on-month. This figure beat market expectations of 0.2% in the reporting period, the Office for National Statistics (ONS) said on Thursday. The British Pound (GBP) is attracting modest sellers in response to stronger UK data.
Uncertainty surrounding the Bank of England’s (BoE) decision to start cutting its borrowing costs from its August meeting has increased. BoE policymaker Catherine Mann is signalling caution about rate cuts, warning of a resurgence in UK inflation and rapid increases in services prices. Mann added that uncertainty over UK wage behaviour is unlikely to go away soon, and policy decisions need to be robust to this.
Meanwhile, BoE policymaker Jonathan Haskell said he does not want to cut interest rates as inflationary pressures remain in the labor market and it is unclear how quickly they will fade. Investors are now pricing in a nearly 60% chance that the BoE will cut interest rates on August 1, the first time since 2020.
On the euro front, European Central Bank (ECB) governing council member Fabio Panett said on Tuesday that the ECB may continue to lower interest rates, adding that wage growth, a central driver of inflation, is “not justified.” Traders are increasing their bets on an ECB rate cut this year, which could limit the cross’s upside in the near term.
GDP FAQs
A country’s gross domestic product (GDP) measures the growth rate of its economy over a given period of time, usually a quarter. The most reliable figures compare GDP with the previous quarter (for example, Q2 2023 with Q1 2023) or with the same period a year earlier (for example, Q2 2023 with Q2 2022).
Annualized quarterly GDP figures extrapolate the quarter’s growth rate as if it were constant for the rest of the year. However, they can be misleading if temporary shocks affect growth in one quarter but are unlikely to last the entire year, as was the case in the first quarter of 2020 with the outbreak of the coronavirus pandemic, when growth plummeted.
A higher GDP result is usually 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 attract more foreign investment. Similarly, when GDP falls it is usually negative for the currency.
When an economy grows, people tend to spend more, which causes inflation. The country’s central bank then has to raise interest rates to combat inflation, with the side effect of attracting more capital inflows from global investors, which helps the local currency appreciate.
When an economy grows and GDP increases, people tend to spend more, which causes inflation. The country’s central bank then has to raise interest rates to combat inflation. Higher interest rates are negative for Gold because they increase the opportunity cost of holding Gold versus putting the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for the price of Gold.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
