Pound Euro (GBP/EUR) Exchange Rate Rises despite Confidence German Economy Will ‘Bottom Out’ by Summer

Pound Sterling Euro (GBP/EUR) Exchange Rate Edges Higher despite ‘Growing Confidence’ in Germany

The Pound Sterling Euro (GBP/EUR) exchange rate edged 0.2% on Tuesday morning. This left the pairing trading at around €1.1170.

On Tuesday, data from ZEW revealed economic sentiment in the bloc’s largest economy improved more than expected in May. However, this did little to boost the single currency against the Pound.

German investor sentiment improved due to increasing hope the effects of the coronavirus pandemic will be short-lived.

ZEW’s economic sentiment index rose from 51 to 63.4 in May, and the research institute’s President Achim Wambach noted:

‘There is growing confidence that the economy will bottom out by summer 2020.’

Meanwhile, Carsten Brzeski, chief economist for the Eurozone at ING noted:

‘Given that traditionally, the ZEW index has a better track record in predicting turning points in the economy, rather than predicting exact outcomes for GDP growth, it is interesting to look at the difference between current assessment and expectations. This difference is currently larger than was seen in 2008 and has stabilised in May and June, suggesting investors’ increasing optimism that the worst might be behind us.

‘Indeed, we would agree that the worst could be over. The dreadful macro data should have marked the trough of the crisis. More real-time data, such as Google mobility data, shows that activity already accelerated by mid-May.’

Pound (GBP) Rises as British Unemployment Holds Steady

Sterling edged higher against the Euro on Tuesday after data showed the number of people on British company payrolls decreased by more than 600,000 in April and May.

The coronavirus pandemic hit the country’s labour market causing the number of vacancies tumbled by the most on record.

Job vacancies plummeted by the largest quarterly fall on record, as vacancies fell by -342,000 to 476,000 due to the coronavirus pandemic.

However, Sterling made gains as the UK’s unemployment rate held steady at 3.9% in the three months to April. This comes despite a record decrease in the country’s overall output which offered the British currency some support this morning.

Economists were expecting a jump in the unemployment rate to 4.7%, although this was largely due to the government’s furlough scheme which allowed firms to keep employees on their books.

Tej Parikh, chief economist at the Institute of Directors noted:

‘The furlough scheme continues to hold off the bulk of job losses, but unemployment is likely to surge in the months ahead.’

While the current unemployment rate of 3.9% means the people out of work remains at a historically low level, Neil Carberry, CEO of the Recruitment and Employment Confederation noted:

‘The headline figures may not show it, but a lot has changed since April – with the claimant count rising to 2.8m, the unemployment rate is likely to be much higher than 3.9% now.

‘But with the lockdown being eased and the economy opening up, hiring should grow. The scale of the growth in unemployment through the rest of the year will depend on consumer confidence and how employers react to the winding down of the furlough scheme.’

Pound Euro Outlook: UK and Eurozone Inflation in Focus

Looking ahead to Wednesday, the Pound (GBP) could slide against the Euro (EUR) following the release of further disappointing British data.

If the UK’s inflation rate slumps further below the Bank of England’s (BoE) target, it will leave Sterling under pressure.

However, the single currency could also suffer losses following the release of the bloc’s inflation rate.

If Eurozone inflation eases further than expected in May, it could leave the Pound Euro (GBP/EUR) exchange rate flat.

Millie Empson

Contact Millie Empson