Pound to Euro (GBP/EUR) Exchange Rate Falls Despite German Growth Sinking by 2.2% in First Quarter

GBP/EUR Exchange Rate Falls Despite Germany Entering a Technical Recession

The Pound to Euro (GBP/EUR) exchange rate fell by -0.2%. Germany entered a technical recession today after growth in the fourth quarter was revised down to -0.1%. The pairing is currently trading around €1.12.

Today also saw the release of the flash German GDP report for the first quarter, which confirmed consensus and fell from -0.1% to -2.2%.

Germany’s Federal Statistics Office commented:

‘The corona pandemic hits the German economy hard. Although the spread of the coronavirus did not have a major effect on the economic performance in January and February, the impact of the pandemic is serious for the 1st quarter of 2020. […] That was the largest decrease since the global financial and economic crisis of 2008/2009 and the second largest decrease since German unification.’

As a result, the Euro (EUR) struggled against some of its peers today as Germany – the Eurozone’s largest economy – continues to show signs of buckling under the ravages of the coronavirus.

However, following Germany’s top court’s ruling on the European Central Bank’s (ECB) actions as illegal has left some single currency traders concerned for the bloc’s solidarity going forward.

Nevertheless, German Chancellor Angela Merkel has insisted that the ruling should ‘spur’ efforts towards greater integration within the Eurozone.

Pound (GBP) Falls as UK-EU Brexit Talks Due to Finish Amid Gloomy Speculations on N-Deal

Sterling struggled as the UK-EU talks on the two powers’ future relationship finish today. However, with media reports suggesting that various sticking points remain Pound investors are concerned over the possibility of a no-deal Brexit.

Meanwhile, Brussels has levied legal action against the UK due to a ‘failure to comply’ with the EU’s freedom of movement rules. As a result, this has further soured relations between the UK and the EU.

A spokesperson or Prime Minister Boris Johnson commented:

‘We will look at what the EU has to say and we will respond in due course.’

The Pound (GBP) took a hit by growing fears from UK manufacturers. Various manufacturers warned that they may not be able to survive the coronavirus pandemic.

Trade body Make UK said that three-quarters of businesses doubt they’ll be back to normal within six-months.

Stephen Phipson, Make UK’s Chief executive, commented:

‘It’s clear that it is going to be a long road back to anything like normal trading conditions and, despite the lockdown beginning to be lifted, there will be a significant impact on companies and jobs for some time to come.’

GBP/EUR Forecast: Could Sterling Suffer on Rising UK Unemployment Data?

Looking ahead to next week, the Pound (GBP) could face further volatility if the UK’s economic outlook continues to deteriorate.

Tuesday will also see the release of the UK’s ILO Unemployment report for March. However, if this continues to rise, we could see the Pound sink further against the single currency.

Meanwhile, Euro (EUR) investors will be looking ahead to Tuesday’s release of the latest Eurozone’s ZEW survey into economic sentiment. If this confirms consensus and falls from 25.2 to -12.1, then we could see the single currency fall.

Germany’s ZEW Survey into economic sentiment is forecast to plummet by -42.3. As a result, we’re likely to see the Euro struggle early into next week’s session.

The GBP/EUR exchange rate will be dictated by the UK’s coronavirus developments. However, if the rate of infection from Covid-19 shows signs of falling, then the outlook for the economy could brighten.

David Moore

Contact David Moore