German Factory Orders Slump Benefits Pound Sterling Euro (GBP/EUR) Exchange Rate
An unexpectedly sharp decline in German factory orders encouraged the Pound Sterling to Euro (GBP/EUR) exchange rate to recover some of its lost ground this morning.
While forecasts had pointed towards an easing in orders on the year investors were still caught off guard by the -8.6% slide, driving the Euro (EUR) lower across the board.
This weak showing raised fresh concerns that the Eurozone’s powerhouse economy is slipping into a state of recession, something which could drag down growth in the rest of the currency union.
As Carsten Brzeski, Chief Economist at ING, commented:
‘Today’s sharp drop in new orders clearly undermines the tentative signs of a rebound or at least a bottoming out at the end of the first quarter.’
With the European Central Bank (ECB) having already adopted a more dovish policy bias the risk of an interest rate cut coming sooner rather than later picked up.
Underwhelming House Price Index Limits Pound Sterling (GBP) Demand
However, support for Pound Sterling (GBP) remained generally limited ahead of the weekend as June’s Halifax house price index contracted on the month.
Although the contraction was slightly smaller than forecast this was not enough to shore up GBP exchange rates today.
Following on the heels of June’s disappointing UK PMIs and a decline in new car sales this weakness offered further evidence that the economy is struggling in the face of Brexit-based uncertainty.
With consumers adopting a more wary outlook as a result of political jitters and a lack of clarity over the shape of the UK’s future relationship with the EU the appeal of the Pound naturally diminished.
Euro (EUR) Volatility Forecast on Latest German Trade Figures
The mood towards the Euro could sour further next week if the latest raft of German trade data fails to show an improvement on the month.
After the sharp fall in export volumes seen in April investors are hoping to see a rebound in May, suggesting that the recent decline in trade has stalled.
Signs of a tentative recovery in trade could encourage the single currency to trend higher across the board, although EUR exchange rates look vulnerable to any fresh decline.
However, in the wake of the disappointing German factory orders data the outlook for Monday’s industrial production figures appears negative.
If industrial production also shows an increased slump on the month in May this may fuel market concerns over the health of the German economy, leaving EUR exchange rates on the back foot.
GBP/EUR Exchange Rate Gains Unlikely Ahead of UK GDP Data
Ahead of Wednesday’s UK gross domestic product data the GBP/EUR exchange rate may come under renewed pressure.
Expectations for May’s monthly growth reading are particularly lacklustre, with forecasts pointing towards another contraction.
If the monthly gross domestic product clocks in at -0.7% as anticipated this could send the Pound into a fresh slump, pushing GBP exchange rates back towards their recent lows.
On the other hand, any positive growth signal may encourage the GBP/EUR exchange rate to gain some ground next week, in spite of lingering anxiety over Brexit.