German Export Recovery Drags on Pound Euro (GBP/EUR) Exchange Rate
A solid monthly rebound in German export volumes kept the Pound Euro (GBP/EUR) exchange rate on the back foot this morning.
As German exports saw growth of 1.5% on the month, the trade surplus widened from 16.4 billion to 21.1 billion, suggesting the Eurozone’s powerhouse economy is shrugging off global trade tensions.
However, lingering doubts over the likelihood that the US and China will finalize a phase one trade deal saw the Euro (EUR) struggling to capitalise on these positive figures.
Despite the encouraging trade data, investors maintained a cautious view of the German economic outlook, with the risk of a third quarter recession still hanging over EUR exchange rates.
As Carsten Brezeski, Chief Economist at ING, noted:
‘The fact remains that the German economy has been in de facto stagnation for more than a year. This is clearly nothing to become too cheerful about.’
Pound (GBP) Under Pressure on BoE Split Vote
Support for the Pound (GBP) remained generally muted in the wake of yesterday’s unexpectedly dovish Bank of England (BoE) policy meeting.
With the Monetary Policy Committee (MPC) divided on the subject of interest rates, the odds for a rate cut following the new January 2020 Brexit deadline have risen to the detriment of GBP exchange rates.
Ongoing Brexit uncertainty and a lack of clarity on the outcome of the December general election look set to tie the central bank’s hands in the short-term, but signals from BoE governor Mark Carney combined with domestic and global economic woes have increased bets for a 2020 rate cut.
A lack of confidence in the strength of the British economic outlook following October’s disappointing set of PMIs have also left the GBP/EUR exchange rate struggling to find traction.
UK Growth Recovery Forecast to Offer GBP/EUR Limited Gains
Demand for the Pound could pick up on Monday if the third quarter UK GDP meets analyst predictions and demonstrates greater resilience, but ongoing Brexit and election uncertainty is likely to cap these gains.
A return to positive growth on the quarter would give GBP exchange rates a solid rallying point and reduce bets for a future BoE rate cut, even though the economic outlook remains clouded by the unresolved issue of Brexit.
But with GBP investors sharply focused on British politics, positive data is unlikely to have a major impact on the GBP/EUR exchange rate.
Spanish Election Set to Weigh on Euro (EUR)
The outcome of Sunday’s Spanish general election may exert some pressure on the Euro as markets react to further political uncertainty.
Unless the election delivers a decisive result the single currency looks vulnerable to renewed selling pressure.
Fresh gains could be in store for EUR exchange rates on Tuesday, though, as forecasts point toward a modest improvement in the German ZEW economic sentiment index.
While sentiment is expected to remain trapped in negative territory, any signs of improvement will offer some respite from growing concerns for the German economy.