GBP EUR Exchange Rate Slides as German Factory Orders Recover

July 6, 2017 - Written by John Cameron

STORY LINK GBP EUR Exchange Rate Slides as German Factory Orders Recover

The Pound Euro (GBP EUR) exchange rate slipped from a two-week high this morning as Germany reported a jump in factory orders in May.

Euro (EUR) Advances as German Factory Orders Rebound

The Euro was able to rally from a two-week low earlier this morning following the release of Germany’s latest factory orders data.

According to Germany’s national statistics agency, Destatis factory orders rebounded in May, reversing a 2.2% contraction the previous month to expand by 1.0%, although they fell short of an expected 2.0% rise.

The recovery was largely driven by foreign orders, particularly in the Eurozone with accounted for 1.7% of the 3% rise in overseas demand.

However some analysts are a little more concerned that orders failed to meet expectations, suggesting that the recovery may not be sustainable, with investment in the sector possibility sliding again over the coming months if domestic orders fail to strengthen.

Rainer Sartoris, economist at HSBC said;

‘In May, industrial orders rose by 1.0% month-on-month after falling by 2.2% m-o-m, undershooting consensus expectations of a 1.9% rebound.’

‘Domestic orders were particularly weak, which raises questions about the strength of the recovery of investment in machinery and equipment. Despite the disappointing reading in May, orders are still heading for an increase in Q2 but the official data continues to underperform the high optimism in the leading indicators.’

Germany’s economy ministry is a little more confident however, with it forecasting that today’s data will indicates that growth will remain stable over the coming months, in a statement it said;

‘The solid development in orders, as well as the excellent business climate, signal further moderate upward momentum in manufacturing.’

Brexit Trade Warning Pressures Pound (GBP)

Sterling struggled to repel the Euro’s advance this morning following recent comments from EU’s chief negotiator in Brexit talks, Michel Barnier.

At a speech at the European Economic and Social Committee in Brussels Barnier warned that the UK was unlikely to achieve its aim of a ‘frictionless trade’ agreement with the EU after Brexit and suggested that the full implications of leaving the EU were not understood by UK politicians.

Barnier said in his speech;

‘I have heard some people in the UK argue that one can leave the single market and keep all of its benefits – that is not possible.’

‘I have heard some people in the UK argue that one can leave the single market and build a customs union to achieve ‘frictionless trade’ – that is not possible.’

Creating a new trade deal with the EU is one of Theresa May’s major goals in Brexit negotiations, however EU officials have repeatedly stated that any free trade deal would require the acceptance of freedom of movement, something which the Conservative government says is incompatible with its own plans.

Brexit Secretary David Davis has previously said that Britain would step away from the negotiation table if the EU is unwilling to offer ‘free and frictionless trade’, something that could see the UK fall back on unfavourable WTO guidelines once Brexit is completed.

GBP EUR Forecast: ECB Minutes to Weigh on Euro?

The GBP EUR exchange rate may tumble later this afternoon with the release of the minutes from the European Central Bank’s (ECB) latest monetary policy meeting.

Markets are likely to scour the accounts for any hint that the bank is planning to trim down its stimulus programme after investors interpreted comments by ECB President Mario Draghi last week of moving away from quantitative easing, a supposed prerequisite for the bank raising interest rates.

Meanwhile in other central bank rumblings the Pound may advance if in a speech on Friday Bank of England (BoE) Governor Mark Carney builds on his recent comments that the bank may be preparing to accelerate its schedule for raising interest rates.

Current Interbank Exchange Rates

At the time of writing the GBP EUR exchange rate was trending around 1.1412 and the EUR GBP exchange rate was trending around 0.8765.

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