UPDATE: The Pound Euro (GBP/EUR) exchange rate continued to rise this afternoon following the news that UK Covid-19 cases had fallen to their lowest daily total in three weeks.
As a result, confidence in the UK economy has continued to improve, despite Number 10’s warning that cases could edge higher once new data is added following the easing of lockdown measures on 19 July.
Meanwhile, confidence in the Eurozone economy has continued to falter after the latest German IFO data for July fell below forecasts, showing a slowing down in business confidence in the Eurozone’s powerhouse.
GBP/EUR Exchange Rate Edges Higher, Leading Economic Forecaster Predicts Rebounding UK Economy
The Pound Euro exchange rate rose by 0.5% today as optimism in UK economy continues to grow, with the EY Item Club predicting that the economy will recover to pre-pandemic levels by year end. The pairing is currently fluctuating around €1.16.
Sterling has benefited from the EY Item Club’s view that the British economy is growing at its fastest pace in 80 years.
The leading economic forecaster’s senior economic advisor commented:
‘[F]ace-to-face parts of the economy means the UK should have a correspondingly faster recovery.’
This month’s lifting of lockdown measures has continued to contribute to growing confidence in the outlook for the UK economy, buoying the EUR/GBP exchange rate.
UK Covid-19 infections have also fallen five days in a row for the first time since February.
Sunday saw the UK record 29,173 new cases, down from 48,161 on July 18.
Professor Mark Woolhouse of Edinburgh University was cautious, however, saying:
‘There are at least 8 million adults who have had no vaccination at all, plus most children under 18. That is still a lot of material for the virus to work with … and if the change in behaviour is dramatic enough [after 19 July], then we could see cases increase again.’
Euro (EUR) Exchange Rate Falls, German Business Climate Data Falls Below Forecasts
The Euro (EUR) fell today following the release of the latest German IFO business climate and expectations data for July.
All of the IFO gauges showed an unexpected decline in German business morale. As a result, EUR investors have become more concerned about the outlook for the Eurozone’s largest economy.
Ifo President Clemens Fuest commented:
‘Companies evaluated their current business situations as somewhat better, but their expectations for the coming months were significantly less optimistic. Supply bottlenecks and concerns over newly rising infection numbers are weighing on the German economy.’
However, confidence in the Eurozone economy is steadily returning now that key economies reopen and business activity begins to boom.
GBP/AUD Exchange Rate Forecast: German IFO Report in Focus
In absence of any notable Eurozone data today other than the IFO report, EUR traders will be looking ahead to Wednesday’s latest GfK consumer confidence survey for August.
Any improvement in consumer confidence in the Eurozone’s largest economy for next month would be EUR-positive.
Thursday will see the release of Germany’s latest unemployment rate report for July. Could an uptick in employment drive-up the Euro?
The Pound Euro exchange rate could head higher this week, however, if confidence continues to grow in the British economy.
If Covid-19 infection rates and hospitalisations show any signs of falling across the UK, then the GBP/EUR exchange rate would head higher.