Surprise Slump in German Factory Orders Drives Pound Euro (GBP/EUR) Exchange Rate Climb
An unexpectedly sharp monthly decline in German factory orders encouraged the Pound Sterling to Euro (GBP/EUR) exchange rate to rally this morning.
While forecasts had pointed towards a modest 0.3% of growth on the month orders instead slumped -1.3%, highlighting the persistent weakness of the German manufacturing sector.
This disappointing showing suggests that the Eurozone’s powerhouse economy continued to lose momentum throughout the fourth quarter, raising the risk of an underwhelming gross domestic product reading.
Commenting on the data, Carsten Brzeski, Chief Economist at ING, noted:
‘All in all, there are still no signs at all of a bottoming out for German industry. Instead, the free fall continues. In fact, there is simply one word to describe the current state of the German industry: ‘dire’.’
As a result, the Euro (EUR) fell out of favour with investors once again, in spite of Tuesday’s solid Eurozone consumer price index data.
Recovering UK Productivity Shores up GBP Exchange Rates
Support for Pound Sterling (GBP), meanwhile, picked up thanks to a better-than-expected third quarter labour productivity figure.
News that productivity had strengthened from -0.2% to 0.4% on the quarter encouraged a greater sense of confidence in the wider economic outlook, boosting the GBP/EUR exchange rate.
December’s Halifax house price index also offered investors cause for confidence, with a 1.7% monthly acceleration in prices pointing towards a stronger level of domestic resilience.
With the outcome of the snap general election appearing to have shored up householder confidence this fuelled bets that sentiment could maintain a bias towards greater positivity in the coming months.
Lacklustre German Trade Data Forecast to Push Euro Lower
The mood towards the Euro could deteriorate further on Thursday if November’s German trade data and industrial production figures fail to impress.
With the headline trade surplus expected to narrow from 21.5 billion to 19.9 billion, driven by a fresh contraction in export volumes, worries over the health of the German economy could pick up.
As global trade tensions remain elevated thanks to the souring of US-Iran relations any signs of an export slowdown could weigh heavily on demand for the single currency.
However, if industrial production rebounds on the month in November this may offer EUR exchange rates a rallying point.
Any evidence of resilience within the German manufacturing sector would limit the risk of a fourth quarter growth contraction, to the benefit of the Euro.
Pound Jitters Expected on Comments from BoE Governor Carney
Comments from outgoing Bank of England (BoE) Governor Mark Carney could provoke some additional volatility for the GBP/EUR exchange rate, meanwhile.
Markets continue to look for any signals as to the BoE’s next policy move, given the Brexit-based uncertainty that still hangs over the UK economy.
If Carney expresses a greater degree of confidence in the economic outlook this may encourage investors to pile into the Pound.
On the other hand, any signs of increased caution could leave the GBP/EUR exchange rate on the back foot, reversing its recent uptrend.