Downtrend Continues for Pound to Euro (GBP/EUR) Exchange Rate After Robust German Factory Orders

Modified: Thursday, 6 October 2016 10:05 BST - Written by Ben Hughes

STORY LINK Downtrend Continues for Pound to Euro (GBP/EUR) Exchange Rate After Robust German Factory Orders

Strong German Data Boosts EUR Exchange Rate Demand

Confidence in the Euro (EUR) was boosted on Thursday morning after Germany’s factory orders were found to have smashed forecast in August.

Orders rose 2.1% on the year, suggesting that the Eurozone’s powerhouse economy has continued to shrug off recent market uncertainty to stage a greater recovery within its industrial base.

This stronger showing bodes positively for the wider currency union and has helped to overshadow ongoing worries over creditor-mandated reforms in Greece and the uncertain outlook of Deutsche Bank.

However, the relief of the single currency could prove short-lived, as Carsten Brzeski, Chief Economist at ING, notes:

‘German industry is still running low on fuel. New orders have literally been stagnating since last winter and even after today’s increase, domestic orders are still under-performing. Unless we see an entire series of similar data in the coming months, German industry will have troubles shifting to a higher gear.’

Pound Sterling Remains Weak Over Hard Brexit Concerns

In the absence of fresh UK data the Pound (GBP) has returned to a softer footing, remaining under pressure as investors move to price in higher odds of a hard Brexit.


Given the increasingly hard line of rhetoric from government ministers with regards to immigration the prospect of a loss of single market access seems far starker than previously anticipated.

Although Chancellor of the Exchequer Philip Hammond will be meeting with executives from a number of the US banks with bases in the City, with the intention of offering reassurance, this is unlikely to encourage any particular optimism in Sterling.
While the Bank of England (BoE) now seems less likely to cut interest rates again in the near future and greater fiscal policy reforms have been promised for the Autumn Statement the Pound to Euro (GBP/EUR) exchange rate remains biased to the downside.

Wider UK Trade Deficit Forecast to Dent GBP/EUR Exchange Rate Further

The appeal of the Pound is unlikely to be improved by Friday’s raft of data, with forecasts pointing towards a widening of the trade deficit having occurred in August.

A less favourable trade balance would not encourage particular confidence in the outlook of the UK economy, with trade conditions unlikely to be positively impacted in the event of a hard Brexit.

The GBP/EUR exchange rate could also be weighed down by another strong showing in German industrial data, with industrial production expected to have recovered from July’s sharp contraction.

Volatility for the pairing could also come from the latest US Non-Farm Payrolls report, with a robust labour market likely to boost Fed rate hike bets and drag on the Euro as a result.

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