EUR/GBP is rising again. Kit Juckes, Chief Global FX Strategist at Société Générale, notes that Europe’s balance of payments is more euro-friendly now. 

UK consumer spending decoupled from GDP – temporarily

“The current account surplus peaked in 2018, before slipping into deficit in the year to August 2022. Long-term capital outflows, driven by bond flows, surged in in 2020-2021. The capital account picture improved through 2022, but the current account went the other way. Now, things are set to improve: Lower energy prices will turn the current account around, while higher rates/yields, and the pivot from QE to QT, will provide plenty of Euro-denominated bonds for investors to buy. There are debt issues to worry about, but the Euro will benefit.”

“Real spending dramatically out-performed GDP in 2020-2022 in the UK but higher inflation has brought that to a dramatic end. The nominal series is much less volatile, but it looks as though, until inflation falls, 2023 will be payback time after the over-spending of the last three years.”