Pound Euro (GBP/EUR) Exchange Rate Rises a Cent as German Confidence Tanks

German Business Sentiment Slump Lifts Pound Euro (GBP/EUR) Exchange Rate

A downward revision to the German IFO business sentiment index helped the Pound Sterling to Euro (GBP/EUR) exchange rate recover further ground.

The index plunged from 96 to 86.1 this month, reflecting the significant chilling effect of the Covid-19 crisis as economic activity ground to a standstill at the end of the first quarter.

While the deterioration came as little surprise to investors, given the widely worsening state of global sentiment in the face of the pandemic, this still put a dampener on the Euro (EUR).

With US officials ready to agree on a massive package of fiscal stimulus designed to shore up the world’s largest economy an easing in market risk aversion further limited the potential for EUR exchange rate gains.

Softer UK Inflation Offers Support to GBP Exchange Rates

Demand for Pound Sterling (GBP) picked up further, meanwhile, as the UK consumer price index weakened as forecast.

A lower level of inflationary pressure could help to support domestic households in the coming months, diminishing the economic impact of Covid-19.

Even so, with the UK economy entering its second day of lockdown the lingering risk of a major downturn still hangs over the outlook of the GBP/EUR exchange rate.

A persistent sense of business uncertainty looks set to limit the potential for the economy to rebound in the second half of the year, keeping the Pound under a degree of pressure.

Pound Vulnerable to Underwhelming UK Retail Sales Figures

The mood towards the Pound could sour once again tomorrow, though, if February’s UK retail sales data fails to impress.

Evidence that consumer spending had begun to weaken even before the major impact of the Covid-19 crisis kicked in would add to the risk of a sharper economic downturn.

Without evidence of greater resilience among UK consumers the looming threat of a major gross domestic product contraction looks set to hang over the GBP/EUR exchange rate.

On the other hand, the outcome of the Bank of England’s (BoE) scheduled March policy meeting could also provoke volatility for the Pound.

Signs that policymakers could opt to cut interest rates again in the months ahead may drive some sharp moves for GBP exchange rates.

German Consumer Confidence Slip Set to Weigh on Euro

Demand for the Euro looks set to weaken further, meanwhile, as forecasts point towards a fresh decline in the German GfK consumer confidence index.

As long as signs continue to highlight a decline in sentiment within the Eurozone’s powerhouse economy the potential for a EUR exchange rate recovery appears limited.

While a decline is widely expected this could still weigh on the mood towards the single currency in the near term.

The release of the European Central Bank’s (ECB) latest economic bulletin could trigger Euro volatility as markets look for any possible hints of the central bank’s future policy moves.

Louisa Heath

Contact Louisa Heath