Pound euro exchange rate (GBP/EUR) suffers a sharp fall as UK IP disappoints

By Rob Samson

The British pound has seen its advantage against the euro slip in the Friday morning session in London as concerns grow that the UK's economic outperformance may be waning.

By early afternoon in London we see the pound sterling to euro exchange rate (GBP/EUR) is trading 0.27 pct lower on a day-to-day basis at 1.2080; GBP/EUR slipped below the 1.21 level in morning trade after the release of a set of worse-than-expected industrial production data.

(Please note all GBP/EUR quotes are taken from the spot markets; your bank will subtract a discretionary spread when passing on their retail rate. However, an independent FX provider will guarantee to undercut your bank's offer and deliver you up to 5% more currency. Please learn more here.)

The British pound has enjoyed a strong start to the year against the euro with hefty gains coming in the past two days in particular.

However, those hoping for these gains to continue received a rude surprise on Friday morning with the release of the UK's manufacturing production for the month, the data proved to be "extremely disappointing and has caused the pound to lose most of its gains made in the last two days," says Sasha Nugent at Caxton FX.

Analysts have reacted to today's data with concern suggesting that we may have seen the peak in the growth that has driven the UK's economic revival.

It is the outperformance of the UK over the Eurozone economy that has seen the pound euro exchange rate head higher.

Should this outperformance be eaten away then we could witness the GBP/EUR slip in sympathy.

"Sentiment may begin to change if the market receives more disappointing news as the month progresses. Next week's Retail Sales report now looms very large as a measure of consumer strength. Given the weaker Christmas season data from the major UK retailers and the drop in the BRC monitor to 0.4% from 0.8% expected - the chances of another data point miss are relatively high," says Boris Schlossberg at BK Asset Management.

Central Banks stay put

Both the euro and the pound sterling received a boost yesterday from their respective central banks who opted to keep policy unchanged.

ECB President Mario Draghi strengthened his pledge to keep interest rates low for an extended period to protect economic gains which saw the EUR head south before recovering.

"Both currencies were strengthened by the lack of change from their central banks, however the pound did come out on top," notes Nugent.