Worst Eurozone Industrial Production in Close to Decade Sends Pound Euro (GBP/EUR) Exchange Rate Higher

Pound Sterling Euro (GBP/EUR) Exchange Rate Rises as Eurozone Industrial Production Plummets

The Pound Sterling Euro (GBP/EUR) exchange rate edged higher on Wednesday, leaving the pairing trading at around €1.1890.

The single currency edged slightly lower against GBP after December’s industrial production plummeted further than expected.

Production in the Eurozone fell by an annual rate of -4.1%, while November’s production was downwardly revised to -1.7%.

This was the worst annual fall in production since December 2018, dampening Euro sentiment.

Added to this, monthly production plummeted by -2.1%, the worst monthly fall since January 2009.

Eurozone Recession Fears Weigh on Euro (EUR)

Overnight, recession fears weighed on the Euro as traders worry the coronavirus outbreak could dampen Eurozone growth.

Commenting on this, Standard Chartered’s head of global G10 FX research, Steve Englander said:

‘The main impact of coronavirus for Europe is growth.

‘The Euro area started the year with low growth and an ECB largely out of policy options. [A] bad scenario could see an extension of recent moves and EUR/USD may head towards the $1.04/05 lows of the European debt crisis.’

However, it has been argued that the bloc will be better equipped to handle Covid-19, and S&P Global Ratings chief economist for EMEA, Sylvain Broyer stated:

‘In 2003, the unemployment rate was on the rise across the continent. Today, European unemployment is close to an all-time low.

‘Moreover, by lowering global growth expectations, the coronavirus has weighed on the oil price, which will lend support to households’ purchasing power in Europe.’

Yesterday: Sterling (GBP) Rebounds on UK Growth Data

The Pound received a slight boost on Tuesday after UK GDP revealed growth showed no change in the fourth quarter.

This was a slight rebound after GBP hit the lowest level for the year on Monday. Uncertainty over the country’s future trade relationship with the European Union drove the Pound lower.

Yesterday’s data will come as reassurance that the Bank of England (BoE) is not going to slash rates in the short-term. In January’s meeting, the bank signalled that it wanted to see if growth picked up after December’s general election.

Commenting on this, Audacity Capital’s chief global strategist, Karim Yousfi noted:

‘Few expected fireworks from a report that focuses on the final months of election and Brexit uncertainty.

‘So this is more a case of not good, but good enough. With a clear majority of the Bank of England’s interest rate-setting grandees already reluctant to cut rates, this GDP print will give them no impetus to cut any time soon.

‘For this reason, the Pound is pepping up against both the Dollar and the Euro.’

Pound Euro Outlook: Will Weak EC Forecasts Weigh on EUR?

Looking ahead, the Euro (EUR) could edge higher against the Pound (GBP) following the release of German inflation data.

If January’s inflation rate edges up, closer to the European Central Bank’s (ECB) target, the single currency will rise.

However, the Euro could suffer losses following economic forecasts from the European Commission.

If the EC revise growth predictions lower for the bloc, the Pound Euro (GBP/EUR) exchange rate will be left flat.

Millie Empson

Contact Millie Empson