Pound Sterling Euro (GBP/EUR) Exchange Rate Slides as Eurozone Suffers Historic Decline
UPDATE: The Pound Sterling Euro (GBP/EUR) exchange rate slumped by around -0.4% this afternoon. This left the pairing trading at around €1.1218.
The Pound continued to slide against the Euro on Tuesday afternoon despite data confirming first quarter Eurozone GDP suffered a historic decline.
Q1 GDP was upwardly adjusted in the third estimate to -3.6%. However, analysts have noted that this does not make much difference.
The revision was largely due to an upward revision in France’s growth which edged up from -5.8% to -5.3%.
This revision in France confirmed the downturn was largely due to the coronavirus pandemic lockdowns. The lockdowns only covered around two to three weeks in the first quarter although this caused the largest ever quarter-on-quarter slump.
Pound Sterling Euro (GBP/EUR) Exchange Rate Slides as ‘Worst Month’ Ever Behind Germany
The Pound Sterling Euro (GBP/EUR) exchange rate slumped by around -0.3% this morning. This left the pairing trading at around €1.1225.
The single currency was able to edge higher despite data showing German exports tumbled by -24% in April. This followed a dire -11.7% decline in March.
Added to this, imports fell by -16.5%, which caused the bloc’s largest economy’s trade balance to narrow to €3.2 billion in April.
The export-reliant German economy has taken a beating from the coronavirus. It took five months for exports to plummet by 26% during the global financial crisis, whereas it took just April for a similar plunge.
However, analysts have suggested that while April was the worst month ever in terms of economic data releases, May could rebound and be one of the best months ever.
The lifting of lockdown measures is likely to lead to a strong pick-up according to mobility data.
According to ING’s Chief Economist for Eurozone and Global Head of Macro, Carsten Brzeski:
‘The only upside from today’s data is that it was the final chapter in what has been the worst month ever for the German economy. With the worst now behind us, things will start to brighten. In past recoveries, the German economy could always count on exports to kickstart the recovery. After the 2008/9 crisis, it was the Asian countries and strong demand for German investment goods which helped the German economy to overcome the recession swiftly. This time around, the economy will have to look to something other than exports to stimulate growth.’
Pound (GBP) Falls as Government Abandons Plans to Re-Open Primary Schools
Sterling remained under pressure this morning after edging higher at the start of the week on optimism about Boris Johnson’s government easing lockdown further.
Growing global optimism also boosted the Pound, although markets have been left under pressure ahead of Wednesday’s Federal Reserve meeting.
Added to this, plans in England for all primary school pupils to attend school before the end of term has been dropped by the government. This weighed on GBP sentiment and sent the pairing lower.
Meanwhile, Sterling has been left under pressure as attention turns to British government borrowing levels.
Borrowing has jumped to levels not seen since World War Two. Government forecasters believe the budget deficit may be around 15% of annual economic output in 2020. In comparison, after the global financial crisis it peaked at 10%.
The Prime Minister has also noted that more spending is on the way after promises to ‘double down’ on his plans for further public infrastructure investment.
Added to this, Brexit remains a risk for the British currency after the latest round of trade talks between the UK and EU failed to make progress.
Pound Euro Outlook: Will GBP Slide on Brexit Worries?
Looking ahead to this afternoon, the Pound (GBP) could edge lower against the Euro (EUR) following a speech from the Bank of England’s (BoE) Jon Cunliffe.
If the BoE’s Deputy Governor for Financial Stability is overly pessimistic and this reignites negative rate speculation it will send Sterling lower.
Meanwhile, Brexit pessimism is also likely to limit any gains and could send the Pound lower this week.
If fears the UK will crash out of the EU without a trade deal secured at the end of the transition period increase, the Pound Euro (GBP/EUR) exchange rate will fall.