Euro Pound (EUR/GBP) Exchange Rate Down as German Data Misses its Mark

April 9, 2018 - Written by John Cameron

STORY LINK Euro Pound (EUR/GBP) Exchange Rate Down as German Data Misses its Mark

German Exports Unexpectedly Plunge – Euro (EUR) Exchange Rates Flounder

The Euro Pound (EUR/GBP) exchange rate pared recent gains on Monday, falling as markets responded to yet another below-forecast data release from the bloc’s largest economy.

According to figures from the Federal Statistics Office, German exports plunged unexpectedly in February, posting their largest monthly fall in over two-years and limiting the country’s trade surplus.

This resulted in a trade balance print of 18.4b, down from the expected 20.0b but above the previous period’s 17.4b.

Analysts blamed the recent strength of the Euro for the fall in exports, with oversea consumers less likely to pick German goods due to the increased price.

HSBC Trinkhaus Analyst Lothar Hessler went further, arguing that Germany’s economy may have peaked in recent months.

‘It looks as if we have surpassed the top of the economic upswing. […] The German economy will continue to growth, but with less momentum’.

Beyond this, the data could also indicate a weak start to the year, particularly with last week’s industrial production and factory orders figures also missing their mark.

UK House Price Rise Cements Rate Hike Bets - Pound (GBP) Exchange Rates Rise

The Pound gained some support on Monday thanks to rising anticipation of a rate hike from the Bank of England (BoE) in May.

This was largely due to the surprising rise in UK house prices, with the Halifax house price reading revealing a 1.5% rise in March – the largest monthly gain since August.

It should be stressed, however, that many economists have argued that this could simply be volatility, rather than evidence of a strong upward trend.

Samuel Tombs, Chief UK Economist at Pantheon stated:

‘The jump in Halifax’s measure of house prices in March just looks like volatility, rather than the start of a strong upward trend. Halifax’s index is prone to large swings; the standard deviation of month-to-month growth since 2010 has been twice as high for Nationwide’s measure’.

Nonetheless, this news effectively cements market hopes that the BoE will move to raise interest rates in May, with many now confident that Brexit might not result in a severe drop in house prices and that the UK’s economy can stomach the rise in interest rates.

Euro Pound (EUR/GBP) Exchange Rate Forecast: US/China Trade Negotiations at the Forefront

With very little notable ecostats due until Wednesday the market focus will likely remain on US/China trade negotiations, with escalations liable to siphon demand away from the US Dollar (USD) to the Euro.

Top US economic advisor, Larry Kudlow, has downplayed recent tariff threats, insisting that they are simply a ‘part of the process’, but markets are still slightly anxious, with Chinese President Xi’s speech on Tuesday expected to be one of the most important events of the week for the markets.

If President Xi capitulates on China’s illegal use of US intellectual property, or moves to lower other trade barriers than US President Donald Trump’s tariff measures might be lessened or entirely abandoned.

This would be seen as a massive de-escalation by the markets, and could put both the Euro and the Pound under pressure as the US Dollar rallies.

If escalations continue, however, then the Euro and the Pound will battle-it-out for position as top viable alternative amongst the majors, with Wednesday’s run of UK ecostats liable to be a major deciding factor.

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TAGS: Euro Pound Forecasts