Weekly Eurozone FX – Lower economic data hurt GBP

by: Georgette Boele

Last week the GBP remained under modest pressure versus the EUR. Economic data in the UK disappointed and this hurt the GBP. This manifested itself by the slight weakening of the GBP after the release of the much weaker-than-expected industrial and manufacturing production numbers. Furthermore, the trade balance showed a wider deficit and GDP estimate for September came in at 0.8% (previous number was 0.9%). Meanwhile, the BoE left interest rates and the size of its asset buying program unchanged at 0.5% and 375bn, respectively. This decision was widely anticipated and therefore did not have a major impact on the sterling. Expectations about UK interest rates also moved sideways. If the momentum in the UK data flow continues to ease, these expectations may be adjusted downwards and this could hurt sterling going forward. We expect sterling to continue to perform well versus the EUR, because we see a bigger correction in eurozone rate expectations. Therefore we keep our EUR/GBP forecast for the end of the year at 0.83.

131014 - Eurozone FX EUR_GBP 2-year