Pound Euro (GBP/EUR) Exchange Rate Strengthens as Germany Suffers Record Economic Contraction

GBP/EUR Exchange Rate Buoyed by Gloomy German GDP Figures

The Pound to Euro (GBP/EUR) exchange rate is ticking higher this morning, after Germany’s latest GDP figures printed below expectations.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1057, up roughly 0.4% from this morning’s opening levels.

Euro (EUR) Slims as Germany Faces Deeper-than-Expected Recession

The Euro (EUR) finds itself on the defensive against the Pound (GBP) this morning in the wake of Germany’s latest GDP estimate.

According to data published by Germany’s federal statistics agency, Destatis, domestic economic growth shrank by 10.1% in the second quarter.

This follows a 2% contraction at the start of the year, and comes in below expectations for a more modest decline of 9%.

The slump was the largest contraction of Germany’s economy since quarterly GDP calculations began in 1970, and plunges the Eurozone’s largest economy into a deeper-than-expected recession.

This dramatic collapse of growth is of course attributed to the coronavirus crisis and resulting national lockdown, which brought economic activity to a screeching halt in the second quarter.

DekaBank economsit Andreas Scheuerle, commented:

‘Now it’s official, it’s the recession of a century. What has so far been impossible to achieve with stock market crashes or oil price shocks was achieved by a 160 nonometre tiny creature named Corona.’

Pound (GBP) Steady as UK Prepares to Implement Stricter Quarantine Measures

At the same time, the Pound (GBP) is holding steady this morning as the UK government prepares to impose new measures to help avoid a coronavirus resurgence.

Reports suggest the government will announce that people with coronavirus symptoms will now be asked to self-isolate for 10 days rather than the current seven.

This follows the recent announcement that any UK holiday makers returning from Spain would have to quarantine themselves for 14 days.

The UK government got a lot of criticism for not acting quickly enough at the start of the outbreak, particularly in being slow to implement a national lockdown, something Boris Johnson recently admitted could have been handled better.

GBP/EUR Exchange Rate Forecast: Eurozone GDP in Spotlight

Turning to the end of this week’s session, the Pound to Euro (GBP/EUR) exchange rate may continue to trend higher with the publication of preliminary GDP figures for the entire Eurozone.

Friday’s data is expected to confirm the bloc fell into recession in the second quarter, with economists predicting a sizable 12% contraction.

However, in light of Germany’s larger-than-expected decline, the Eurozone’s figures could also print below forecasts, likely exerting some additional pressure on the Euro tomorrow.

The pound, meanwhile, could face some headwinds with the conclusion of the latest round of Brexit negotiations.

The final week of July’s ‘intensified’ talks is unlikely to result in any significant progress being made, a result with is likely to disappoint but not surprise GBP investors.

Matthew Andrews

Contact Matthew Andrews