Pound strengthens against the euro following eurozone GDP figures

The pound strengthened against the euro on Friday, finishing the day at 1.1246.

• A set of grim economic figures in the eurozone weighed on the single currency all day on Friday, as investor confidence that a recovery in the region may soon be underway diminished.
  
• German GDP data showed the country’s economy had contracted by 3.8% in the first quarter of 2009, the largest drop since the country started compiling quarterly data in 1970.
  
• Moreover, GDP in the eurozone fell by a much larger-than-expected 2.5% in the period, much faster than the US slowdown. Following a 1.6% contraction in the 16-country region in the final three months of 2008, Friday’s figure deepened what was already the worst recession in continental Europe since World War II.
  
• Sterling therefore gained on the view that whilst the UK economy remains weak, it appears the eurozone economy may be in worse shape, and could take longer to recover from the downturn. As a result, investors bought into the pound, dumping the single currency.
  
• In trading so far today the pound has continued its rise against the euro, as investors remain wary about buying into the single currency following Friday’s data.
  There are no major economic announcements due in either the UK or eurozone today.