Pound Euro Exchange Rate Rises, Will EUR Recover on Improving German Inflation?

GBP/EUR Exchange Rate Edges Higher, Eurozone Economic Woes Eclipse Rising German Retail Sales

The Pound Euro (GBP/EUR) exchange rate edged higher this morning, with the pairing currently trading around €1.127 despite August’s German retail sales alleviating recession fears.

The Euro struggled against the Pound despite increasing German retail sales, which rose by 0.5%, and only slightly undercut forecasts for a 0.6% improvement. The year-on-year figure also improved by 3.2%.

However, analysts at Reuters were downbeat:

‘Uncertainties linked to Britain’s planned departure from the European Union and trade conflicts between the United States and China have plunged Germany’s export-dependent manufacturing sector into a recession.’

Lingering expectations for a European recession in the third quarter continue to hold back the Euro to Pound exchange rate.

Meanwhile, September’s German unemployment change figure fell unexpectedly from 2 thousand to -10 thousand, while the jobless rate held at 5%, slightly above a record-low of 4.9% earlier in the year.

The EUR/GBP exchange rate could edge higher this afternoon if September’s German inflation figure confirms consensus and rises from 1% to 1.2%.

GBP/EUR Exchange Rate Improves, UK’s Q2 Growth Figure Revised up to 1.3%

The Pound (GBP) was left unmoved by today’s Q2 quarter-on-quarter growth figure for the UK which confirmed consensus and held at -0.2%, while the yearly figure was revised up to 1.3% from 1.2%.

However, UK economic data took a back seat to ongoing political developments, with the Conservative Party conference entering its second session.

Chancellor of the Exchequer Sajid Javid, due to speak at the conference later today, raised fears for a no-deal, saying it ‘may well happen’ despite new legislation designed to prevent a disorderly exit.

Prime Minister Boris Johnson remains unyielding on his pledge for the UK to leave the EU on the October 31 deadline, buoying Pound trader hopes for a deal between the UK and the European Union.

Mr Johnson said in an interview for the BBC’s Andrew Marr Show:

‘I do think there’s a good chance [of getting a deal] and we’re working incredibly hard. I’ve been having conversations … we will continue to work tomorrow and in the course of the next few days … to see if we can get this thing over the line. And there’s a good chance.’

GBP/EUR Outlook: No-Deal Brexit Fears Could Drag Down Sterling

Euro traders will be looking ahead to tomorrow’s flash Eurozone inflation figure for September. An improvement could bolster confidence in the European economy, and we could see the Euro claw back some of today’s losses.

Tomorrow will also see the release of Germany’s Markit Manufacturing PMI for September, which is forecast to hold steady at 41.4.

Meanwhile, Sterling traders are bracing for tomorrow’s UK Markit Manufacturing PMI for September, which is expected to ease from 47.4 to 47.

However, the GBP/EUR exchange rate could sink if a UK-EU deal fails to emerge amidst the UK government’s ongoing pledge to meet the October Brexit deadline.

David Moore

Contact David Moore