EUR/GBP trades with mild losses below 0.8600 as UK economy expands 0.6% QoQ in Q2
- EUR/GBP edges lower to around 0.8565 in Thursday’s early European session.
- UK preliminary GDP expanded 0.6% QoQ in Q2 vs. 0.6% expected.
- The ECB is anticipated to cut more through the end of next year.
The EUR/GBP cross weakens near 0.8565 on Thursday during the early European session on Thursday. The UK GDP growth figures were in line with the consensus, which has boosted the Pound Sterling (GBP) against the Euro (EUR). The attention will shift to the UK Retail Sales report on Friday, which is projected to increase by 0.5% MoM in July.
The UK economy grew as expected in the second quarter of the year, National Statistics (ONS) showed Thursday. The country’s GDP grew by 0.6% QoQ in Q2, compared to 0.7% growth in the previous reading. The market consensus was at 0.6%. Furthermore, UK GDP expanded at an annual pace of 0.9% YoY in Q2 from a 0.3% expansion in Q1, matching the estimation of 0.9% growth. In response to the upbeat data, the Pound Sterling (GBP) attracts some buyers and creates a headwind for the EUR/GBP cross.
On the Euro front, the European Central Bank (ECB) is expected to cut its deposit rate again through the end of next year. A Bloomberg survey showed that the benchmark would hit 2.25% in December 2025 following six consecutive quarter-point reductions.
The second estimate for the quarterly Eurozone 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. The Eurozone Industrial Production was worse than expectations, arriving at -0.1% MoM in June versus -0.9 prior, but below the 0.5% estimated.
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.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
