Pound to Euro Rate Drops on Strong Eurozone GDP, Inflation Beat

April 30, 2024

1 minute read

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Euro exchange rates recovered after Eurozone inflation beat expectations and regional growth figures surpassed expectations to show a strong recovery in the first quarter.

The Pound to Euro exchange rate dropped from range highs near 1.1720 to go back below 1.17 after Eurostat said Eurozone GDP grew 0.3% quarter-on-quarter in Q1, recovering from Q4’s -0.1% and beating expectations for 0.1% growth.

Year-on-year inflation stands at 0.4% for Q1, doubling expectations for 0.2%.

At the same time, year-on-year inflation was revealed to have stayed steady at 2.4%. But the core inflation reading – which matters for European Central Bank interest rate deliberations – fell to 2.7% in April from 2.9%, but this was higher than the 2.6% the market was looking for.

Putting this together, we have a decent economic recovery and slightly firmer-than-expected inflation. This is unlikely to stop the ECB from cutting interest rates in June, but it begs the question as to whether it would be appropriate to cut interest rates in July.

The debate for the Euro now rests with what happens after June, and any suggestion that the number of cuts that follow will be limited will likely support the Euro.

This supportive setup was displayed by the Pound to Euro exchange rate, which has fallen in response to fresh bidding for the Euro following the data release.

The Eurozone and UK economies look to be highly synchronised and this will limit Pound-Euro’s ability to go above 1.17. It will also likely limit downside close to the 1.1650 area.