Pound to Euro (GBP/EUR) Exchange Rate Edges Higher as Eurozone GDP Falls to Record Lows in Second Quarter

GBP/EUR Exchange Rate Rises as Eurozone Growth Slumps by -12.1% amid the Covid-19 Crisis

The Pound to Euro (GPB/EUR) exchange rate edged higher this morning after the Eurozone’s GDP figure fell by a record of -12.1% in the second quarter. This was worse than the expected contraction of -12% quarter-on-quarter.

Robert Bergqvist, chief economist at Swedish financial group SEB, was also pessimistic, saying that Europe was facing a ‘monster recession’ if a second wave of Covid-19 threatens another lockdown.

Bert Colijn, the Senior Economist, Eurozone, at ING, commented on today’s report:

‘The hard part of this recovery is set to start about now. First of all, slightly higher trending new Covid-19 cases increase the risk of reversed reopenings, and we’re already seeing local signs of that.  Secondly, from this point on, cautious increases in unemployment and bankruptcies and weak investment will bring to light more characteristics of a general economic slump. These factors are likely to drag on for some time, making a swift recovery to pre-corona levels of GDP out of the question.’

Meanwhile, Italy’s output contracted by -12.4% in the second quarter compared to the last three months. However, this was better than the expected 15% fall.

Italy’s national statistics bureau, ISTAT, said that the slump was still ‘unprecedented’.

Pound (GBP) Edges Higher as UK House Prices Rise in July

The Pound (GBP) edged higher today after UK House Prices saw their biggest monthly rise since August 2009. According to Nationwide’s House Price Index prices rose by 1.7% in July.

Robert Gardner, Nationwide’s chief economist, commented on the data:

‘The bounce back in prices reflects the unexpectedly rapid recovery in housing market activity since the easing of lockdown restrictions. The rebound in activity reflects a number of factors. Pent up demand is coming through, where decisions taken to move before lockdown are progressing.’

However, after large parts of northern England have been put back under lockdown owing to a rise in coronavirus cases, GBP investors are remaining cautious.

GBP/EUR Forecast: Could a Stronger Than Expected German Manufacturing PMI Boost the Euro?

Looking ahead to next week, EUR investors will be keeping a close eye on Monday’s release of Germany’s Markit Manufacturing PMI for July. Any improvement in the Eurozone’s powerhouse economy would prove GBP-positive.

Sterling traders be looking to Monday’s release of the UK Manufacturing PMI, which is forecast to remain at 53.6. As a result, we could see the GBP/EUR edge higher as the UK’s manufacturing sector remains relatively strong.

The GBP/EUR exchange rate will continue to remain dictated by Brexit and coronavirus developments. Any signs of a UK-EU compromise on a possible post-Brexit trade deal would prove GBP-positive.

David Moore

Contact David Moore