- EUR/GBP drops to around 0.8565 in early European trading on Thursday.
- UK preliminary GDP grew 0.6% quarter-on-quarter in the second quarter versus 0.6% expected.
- The ECB is expected to cut further by the end of next year.
The EUR/GBP pair weakened near 0.8565 during the early European session on Thursday. UK GDP growth figures were in line with consensus, which has boosted the British Pound (GBP) against the Euro (EUR). The focus will be on the UK Retail Sales report on Friday, which is projected to rise 0.5% MoM in July.
The UK economy grew as expected in the second quarter of the year, the Office for National Statistics (ONS) showed on Thursday. The country’s GDP grew by 0.6% quarter-on-quarter in the second quarter, compared with 0.7% growth in the previous reading. The market consensus was for 0.6%. Moreover, UK GDP grew at an annual pace of 0.9% year-on-year in the second quarter from a 0.3% expansion in the first quarter, matching the estimate for 0.9% growth. In response to the encouraging data, the British Pound (GBP) is attracting some buyers and creating a headwind for the EUR/GBP cross.
On the euro front, the European Central Bank (ECB) is expected to cut its deposit rate again by the end of next year. A Bloomberg survey showed the benchmark would reach 2.25% in December 2025 after six consecutive quarter-point reductions.
The second estimate of the eurozone’s quarterly gross domestic product (GDP) growth rate for the second quarter (Q2) came in at 0.3%. The figure was the same as the previous quarter and in line with forecasts, Eurostat reported on Wednesday. Eurozone industrial production was worse than expected, coming in at -0.1% month-on-month in June compared with -0.9% previously, but below the 0.5% estimate.
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.
