Pound Sterling to Euro (GBP/EUR) Exchange Rate Knocked, Has Germany Avoided Recession?

Pound to Euro Exchange Rate Slides as Germany Just Barely Avoids Recession

Amid a lack of fresh reasons to buy the Pound (GBP), the Pound Sterling to Euro (GBP/EUR) exchange rate struggled to hold its best levels today after the latest Eurozone data revealed that Germany had surprisingly avoided recession.

Since GBP/EUR opened this week at the interbank level of 1.15, the pair has largely trended with a solid upside bias. Earlier in the week, GBP/EUR touched on its best levels in half a year – since May.

Even as the Euro strengthens today, GBP/EUR is still on track to sustain notable gains this week. At the time of writing, GBP/EUR is still trending in the interbank region of 1.16 and is over half a cent up from the week’s opening levels.

Pound investors remain highly focused on Britain’s election less than a month from now, so the Pound to Euro exchange rate’s movement on data may be limited.

Pound (GBP) Exchange Rates Remain Sturdy despite Lack of Support

The Pound (GBP) continues to trend relatively close to its best levels, even after days of weaker than expected UK data and rising Bank of England (BoE) interest rate cut bets.

Yesterday’s UK inflation rate report showed inflation slowed to just 1.5% year-on-year, which some analysts took as evidence that the BoE will become more likely to cut UK interest rates in the foreseeable future.

Despite this though, investors are hesitant to sell the Pound much amid hopes that the 12th of December General Election will lead to a smooth win for the ruling Conservative Party.

According to Derek Halpenny, Head of Research at MUFG:

‘The Pound is likely to remain well supported as long as the political news-flow pointing to a Tory majority continues,

The upside is limited.’

Euro (EUR) Exchange Rates Seeing Modest Pushes as Germany Avoids Recession

This morning’s key Eurozone ecostats continued a mixed trend, but some major stats came in above expectations and boosted the Eurozone outlook.

Easily most notable was Germany’s Q3 Gross Domestic Product (GDP) growth rate projections.

Broadly expected for weeks to have confirmed that Germany’s economy fell into technical recession, the data surprised. It showed that German growth printed at 0.1% quarter-on-quarter, rather than the expected contraction of -0.1%.

Analysts note that Germany avoided recession thanks to higher spending from German consumers and the government.

However, the data’s impact on the Euro (EUR) was limited, with the shared currency only seeing modest gains.

This was partially due to persisting analyst concerns that Germany’s economy will continue to struggle, as investment in German factories falls and the key car sector struggles.

Pound to Euro (GBP/EUR) Exchange Rate Investors Await Further Eurozone Stats

Markets are relieved that Germany has avoided recession, but too many uncertainties and signs of weakness persist and are keeping pressure on the Euro (EUR).

This week’s Eurozone data has so far given markets glimmers of hope that the bloc’s long slowdown could be starting to recover. As a result, tomorrow’s Eurozone Consumer Price Index (CPI) inflation rate will round the week off.

If Eurozone inflation beats forecasts and avoids a year-on-year slip from 0.8% to 0.7%, the Euro could see some late-week gains as investors digest a week of stronger than expected Eurozone figures.

However, if the data is largely unsurprising, the Euro may struggle for direction towards the end of the week and GBP/EUR will continue to hold its ground amid UK election hopes.

As for the Pound (GBP), a lack of notable UK data due for publication tomorrow makes it even more likely that Sterling investors will remain focused on UK election and political developments.

The Pound to Euro (GBP/EUR) exchange rate is on track to end the week higher, but could slide if Eurozone data gives markets an appetite for the Euro.

Josh Jeffery

Contact Josh Jeffery


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