Pound to Euro (GBP/EUR) Exchange Rate Steady as Eurozone Markets Brace for ECB Speech

GBP/EUR Exchange Rate Rangebound despite ‘Remarkable’ Recovery of German Factory Orders in August

The Pound to Euro (GBP/EUR) exchange rate held steady this morning, with the pairing currently trading around €1.103.

The Euro (EUR) struggled to gain this morning despite Germany’s Factory Orders for August beating forecasts and rising from 3.3% to 4.5%.

Germany’s Economy Ministry said in its report:

‘The catch-up in factory orders continues at remarkable speed. It’s supported primarily by demand from abroad.’

Due to the outbreak of the coronavirus earlier this year, Germany’s Factory Orders fell to record lows in April. August’s return-to-strength spiked optimism in the Germany economy.

However, EUR investors are remaining cautious as the Eurozone’s largest economy could be swiftly derailed from the resurgent Covid-19 virus infections throughout Europe.

Later today will see the European Central Bank’s President, Christine Lagarde, deliver a speech.

Any dovishness about the Eurozone’s economy, however, could drag down the EUR/GBP exchange rate.

Pound (GBP) Edges Higher on Hopes of a Post-Brexit Trade Deal

The Pound (GBP) strengthened today on the European Union’s (EU) relatively restrained response to the UK’s controversial Internal Market Bill.

Consequently, GBP investors are becoming more hopeful that a post-Brexit UK-EU trade deal could be on the horizon.

Zach Pandl, an analyst at Goldman Sachs, was upbeat about the outlook for Sterling, saying:

‘[R]eports of (limited) progress at the latest Brexit talks, and news that UK and EU leaders pushed to speed up negotiations in a weekend call all point in this direction. Though it is unlikely to be a straight line from here, we think the market is still pricing a significant degree of uncertainty into Sterling that is no longer warranted.’

In UK economic data, today saw the release of September’s Construction PMI, which beat forecasts and rose from 54.6 to 56.8.

Duncan Brock, the Group Director at the Chartered Institute of Procurement and Supply, said:

‘UK Construction took off in September, soaring ahead of both the manufacturing and service sectors in terms of output growth and recording the fastest rise in purchasing activity since October 2015.’

Elio Kerr, an economist at IHS Markit, pointed to increased optimism in the construction sector, saying:

‘Forward-looking indicators point to a sustained rise in activity, with new work increasing at the quickest pace since before the lockdown and sentiment towards the 12-month outlook at its strongest for seven months.’

GBP/EUR Outlook: Could Brexit Trade Deal Hopes Strengthen Sterling This Week?

Euro (EUR) traders will be looking ahead to Wednesday’s release of Germany’s Industrial Production figure for August. If this continues to show a robust German economy, then EUR could head higher.

Tomorrow will also see another speech from Christine Lagarde, the President of the European Central Bank. Any gloominess from the ECB would prove EUR-negative.

In UK economic data, tomorrow will see the release of the latest Halifax House Prices gauge. A lagging UK economy would weigh on Sterling.

The GBP/EUR exchange rate will, however, continue to be driven by Brexit developments this week. As a result, GBP would continue to strengthen on renewed hopes in a post-Brexit trade deal.

David Moore

Contact David Moore