GBP/EUR Exchange Rate Rangebound as Contraction is ‘Milder’ Than Expected for German Economy
The Pound to Euro (GBP/EUR) exchange rate held steady today, with the pairing currently fluctuating around €1.108.
The Euro (EUR) struggled following this morning’s release of the latest German GDP figure for the second quarter, which fell from -2% to -9.7% quarter-on-quarter. The year-on-year figure also plummeted to -11.3%.
Carsten Brzeski, chief economist at ING, commented on the data:
‘The contraction of the economy was somewhat milder than in the first estimate, illustrating how difficult it currently is to capture the lockdown-driven swings in any economy with traditional macro models. […] The only good thing about all this data is that it provides a final glance in the rear-view mirror.
‘Looking ahead, it does not take a rocket scientist to predict that the economy will have one of its best quarterly performances ever in the third quarter.
‘At the same time, however, the structural impact of the crisis is also surfacing, limiting too much growth enthusiasm.’
Today also saw the release of the German IFO business climate figure for August, which beat forecasts and rose from 90.5 to 92.6. As a result, the single currency has held steady against the Pound (GBP) as optimism remains over a possible recovery for the Eurozone’s largest economy.
Pound (GBP) Steady as EU Warns of Being ‘Cold-Blooded’ With UK Over Brexit
The Pound (GBP) failed to gain on the Euro (EUR) today following the European Union’s chief negotiator Michel Barnier’s call for the EU to be ‘cold-blooded’ with the UK as the Brexit trade deal deadline approaches.
Sterling traders are cautious as the UK looks set to leave the EU without a deal on December 31st.
Meanwhile, the UK continues to face an unemployment crisis that is hampering any upside in the GBP/EUR exchange rate. Many analysts fear that mass redundancies could appear next week. This would further drag down confidence in the British economy as the furlough scheme eases off.
Garry Young, NIESR deputy director, predicted in July:
‘Unemployment is going to rise to about 10% by the end of this year, before dropping back next year, and we think that an extension of the furlough scheme would have been a relatively inexpensive way to limit that rise in unemployment.’
In UK economic news, today will see the release of August’s CBI Distributive Trades Survey. If this confirms consensus and rises from 4% to 8%, then we could see the GBP/EUR exchange rate edge higher.
GBP/EUR Outlook: Could a Bullish European Central Bank Speech Boost the Euro?
Pound (GBP) investors will be looking ahead to a speech by Bank of England’s (BoE) Chief Economist Andrew Haldane tomorrow. Any dovishness about the British economy, however, would drag down Sterling.
Meanwhile, EUR traders will be paying close attention to Isabel Schnabel, the member of the European Central Bank’s executive board. If she is notably upbeat about the Eurozone’s ability to recover its economy, then we could see EUR rise.