EUR GBP Exchange Rate Stable as Eurozone Factory Output Plummets

August 14, 2017 - Written by John Cameron

STORY LINK EUR GBP Exchange Rate Stable as Eurozone Factory Output Plummets

The Euro Pound (EUR GBP) exchange rate trended narrowly at the start of this week’s session as poor Eurozone industrial data helped to offset fears that Sterling could fall to parity in the foreseeable future.

Euro (EUR) Pressured by Contraction in Factory Output

The Euro’s recent meteoric rise was slowed slightly this morning following the release of the Eurozone’s latest Industrial Production figures.

According to EU statistics office Eurostat factory output contracted 0.6% in June, plummeting from the 1.2% growth shown the month before and reaching its lowest levels since December.

Germany’s -1.1% fall in industrial production was likely one of the main reasons for the overall fall across the Euro area, as Europe’s largest economy remains the single most impactful factor in the Eurozone growth potential.

However despite the sudden contraction in production analysts remain upbeat about the potential for further growth in the Eurozone this year, with suggestions that today’s data will prove to a slight bump in the bloc’s notoriously volatile output figures.
ING Bank economist Bert Colijn said;

‘The recovery of Eurozone industry remains somewhat cautious as strong growth in May has been followed by a 0.6% drop in June. Most indicators point to accelerating growth in production, but data for June suggests that any acceleration from the trend of recent years has yet to happen.’

‘Due to strength in orders and businesses noting strong improvements in production, it seems that an improved trend for production is still in the cards. This would indicate that the surprising growth in the Eurozone could continue in the second half of the year.’

Pound (GBP) Subdued Following Forecast of Parity with the Euro

Sterling struggled to exploit the weakness in the Euro this morning however as investors became increasingly dovish in reaction to suggestions that the GBP EUR exchange rate could reach parity in the near future.

A dovish forecast by Morgan Stanley appears to be the main cause of the renewed fears that the Pound could fall into line with the single currency as political uncertainty and weak economic data weighs on the UK currency.

Analysts at Morgan Stanley said;

‘The UK economic outlook looks bleak, with stretched household balance sheets, Brexit negotiation uncertainty potentially weighing on business investment, and net exports growth staying subdued despite a weak pound.’

‘On the politics front, risks have also increased, with the Conservative party showing split opinions on the UK’s Brexit position, revealing inner party tensions.’

While similarly gloomy predictions were made late last year following the Sterling flash crash, the recent forecast is made on the back of an extremely strong Euro which greatly lowers the chances of Sterling rebounding as it did last year.

Meanwhile hopes that the fall in the value of the Pound would help to make UK goods more competitive also continue to be squashed, with the UK’s latest trade balance data reporting that the UK’s trade deficit is currently at its highest level since September.

EUR GBP Exchange Rate Forecast: UK Trade Figures to Disappoint on Thursday?

Looking ahead the EUR GBP exchange rate is likely to rally at the start of the European session on Tuesday as Germany releases its latest GDP estimate, with economists forecasting that Europe’s largest economy will have grown a healthy 0.7% in the second quarter.

Meanwhile the Pound may attempt to repel the Euro’s advances tomorrow morning as analysts predict that the UK’s CPI figures will report yet another a rise in domestic inflation in July, with investors hopeful that it prompt the Bank of England to rethink its plans to leave interest rates on hold.

However Sterling’s gains may be tempered somewhat by rising concerns that rocketing inflation is taking its toll on the UK’s economic growth as a drop in real wages drags on the UK’s all important services sector particularly in regards to consumer spending.

Current Interbank Exchange Rates

At the time of writing the EUR GBP exchange rate was trending around 0.9091 and the GBP EUR exchange rate was trending around 1.0998.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Euro Pound Forecasts