EUR/GBP Exchange Rate Rises despite Disappointing German Confidence Stats

February 22, 2018 - Written by Tim Boyer

STORY LINK EUR/GBP Exchange Rate Rises despite Disappointing German Confidence Stats

During Wednesday’s trading session, the Euro to Pound exchange rate rose on a microscopic level; having opened trading in the region of 0.8810, the EUR/GBP exchange rate later closed around 0.8829.

Eurozone and UK was generally negative, but there was just enough prevailing optimism in the Eurozone to enable a EUR/GBP rate rise.

In the Eurozone, PMI activity estimates for manufacturing and services activity showed slowdowns, although these were only initial readings so the final stats may print higher.

The day’s Pound-damaging news came when the unemployment rate for December unexpectedly rose from 4.3% to 4.4%.

While there was a surprise increase in average earnings in December (excluding bonuses), this wasn’t enough to push the Pound higher against the Euro.

Declining German Confidence Data Fails to Prevent EUR/GBP Advance

The Euro has risen against the Pound today, fighting through the handicap of poor domestic data.

The most important Eurozone data out on 22nd February has come from Germany, consisting of Ifo measures of economic confidence during February.

The figures were broadly negative, showing larger-than-expected declines in the optimism readings.

Economists were quick to respond to the data; Pantheon Macroeconomics Chief Eurozone Economist Claus Vistesen said;

‘A poor headline, adding weight to the more pessimistic message from the headline surveys this month’.

Additionally, ING Chief Economist for Germany and Austria, Carsten Brzeski, highlighted the myriad factors that could have weighed on confidence by stating;

‘Germany’s most prominent leading indicator, the Ifo index, took a big hit in February, illustrating that the latest market turmoil, the political impasse in Berlin and new fears of a protectionist wave coming from the US as well as the US tax reform are leaving first marks on business optimism’.

Pound to Euro Exchange Rate Losses Caused by UK GDP Slowdown

The Pound has lost ground against the Euro today, seeing a dip down to the region of €1.1311 after a spread of concerning GDP and investment stats.

First up, the Q4 second estimates for GDP growth were revised down for the year-on-year and quarter-on-quarter readings.

This meant that the UK saw the weakest level of economic growth in five years, something that strongly contributed to GBP losses over the course of the day.

Resolution Foundation Chief Economist Matt Whittaker summarised the negative factors behind the GDP data, saying;

‘We've now gone 45 quarters (11.25 years) without growth in annualised GDP per capita reaching its pre-crisis average.

The longest previous period of this kind (starting 1990) lasted just one-third as long.

The UK's performance in 2017 contrasts with strengthening growth elsewhere, and means we've fallen behind Germany in terms of overall post-crisis growth in GDP.

The UK was already further down the international league table when post-crisis growth is measured on a per capita basis.

Most of these figures stop in 2016, but suggestion is we're likely to have fallen further behind in 2017’.

Other UK economic news was similarly disappointing, consisting of reports that business investment in Q4 2018 had dropped from 0.9% to 0% on the quarter.

Although the year-on-year investment figure increased from 1.9% to 2.1%, Pound traders remained concerned about the negative implications of this data.

Euro to Pound (EUR/GBP) Exchange Rate Forecast: EUR/GBP Decline Possible on Eurozone Inflation Stats

The Euro could fall sharply against the Pound in the near-term, when Eurozone inflation rate figures are announced on 23rd February.

Estimates are for slowing levels of inflation in January, which will mean reduced odds of a near-term European Central Bank (ECB) interest rate hike.

The ECB’s takes inflation into account when considering future monetary policy; a move away from the Bank’s 2% target might weaken the Euro considerably.

Also taking place tomorrow will be a speech from Bank of England (BoE) official Dave Ramsden.

Mr Ramsden will be discussing the UK’s productivity levels. If he is concerned about future national performance, then the Pound could drop against the Euro.

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TAGS: Euro Pound Forecasts