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EUR to GBP Exchange Rate Trends with Upside Bias despite German Recession Fears

July 8, 2019 - Written by Ben Hughes

Despite more concerning Eurozone data and fresh surveys suggesting that Germany’s economy is far from out of the woods, the Euro to British Pound (EUR/GBP) exchange rate has avoided losses today and has been trending with an upside bias since markets opened. This has been due to persisting no-deal Brexit and Bank of England (BoE) interest rate cut jitters keeping strong pressure on the Pound.

Demand for both the Euro and Pound have been highly limited in recent weeks, but EUR/GBP continues to gradually trend higher. Last week saw EUR/GBP edge from the level of 0.8954 to close near the level of 0.8960. EUR/GBP even touched near its best levels all year during last week’s trade session.

Since markets opened this morning, EUR/GBP has been fluctuating in a relatively tight region but has been skewing higher. At the time of writing, EUR/GBP trended near the level of 0.8970.

Not much major Eurozone or UK data will be published until Wednesday, when key datasets that could influence Central Bank policy bets will be published.

EUR Exchange Rates Avoids Major Losses despite Fears of German Recession

Last week’s news that the Christine Lagarde would succeed Mario Draghi as the President of the European Central Bank (ECB) when his term ends later in the year was generally well-received by markets.

Being considered a continuity candidate, Lagarde’s nomination had little notable impact on the Eurozone outlook or the Euro’s movement.

Instead, it was the week’s concerning Eurozone economic data that caused speculation of a more dovish ECB economic outlook to rise.

Towards the end of the week, German industrial production and factory orders stats fell short of expectations, worsening concerns about Germany’s economic outlook and causing ECB interest rate cut bets to rise.

Today’s data was fairly similar. While Germany’s May trade balance data was seen as fairly optimistic, Germany’s May industrial production stats came in with a slower than expected result of 0.3% rather than the forecast 0.4%.

On top of that, a fresh survey from Sentix published today revealed that many investors considered a recession in Germany inevitable. According to Carsten Brzeski, Chief Economist at ING Germany:

‘Today’s industrial data suggests that, at least for the second quarter, the German economy is running out of powerful growth engines,

The data was not bad enough to panic but definitely not good enough to lean back and enjoy the summer.’

As the data did not significantly worsen the already concerning Eurozone outlook though, it did not lead to a notable shift in Euro to Pound exchange rate movement.

GBP Exchange Rates Under Pressure amid Fresh No-Deal Brexit Concerns

There were no fresh UK datasets yesterday, but following last week’s rise in Bank of England (BoE) interest rate cut bets and the generally persisting fears of a possible no-deal Brexit, investors remain hesitant to buy the Pound.

Fears of a no-deal Brexit have been a constant down-side pressure on the Pound in recent months, generally limiting the British currency’s potential to recover from near its worst levels.

The perceived possibility of a no-deal Brexit has already risen this week as well.

Boris Johnson, the frontrunner to be Britain’s next Prime Minister, has indicated in fresh comments that he is ‘not bluffing’ when he sees the 31st of October as the absolute deadline for Brexit.

Johnson has claimed that he will fulfil Brexit by then, even in the event that no deal is reached.

Some analysts are beginning to argue that Pound traders may be underestimating the possibility of a no-deal Brexit.

According to Lee Hardman, Currency Strategist at MUFG:

‘The options market has been pricing in more downside risks for the Pound after the end of the Article 50 period in October,

We don’t believe the market has fully adjusted yet.’

EUR/GBP Exchange Rate Forecast: Central Bank Bets Remain in Focus with Data Ahead

While there is expected to be little in the way of influential events for Euro and Pound investors tomorrow, there will be plenty for investors to react to later in the week that could influence the Euro to Pound exchange rate.

Wednesday will see the publication of this week’s slew of UK ecostats, including trade balance and growth rate results, as well as manufacturing and industrial production, and construction output data.

Brexit and political developments are still a priority focus for Pound investors, but these stats are still likely to take focus over the day’s French industrial production report.

If UK growth data beats expectations, Bank of England (BoE) interest rate cut speculation could lighten, and the Pound could see more of a rebound from its recent lows.

The opposite is also true though. BoE interest rate cut bets could rise in response to weak UK data and EUR/GBP may climb higher.

Euro investors will be more focused on data on Thursday and Friday.

German and French inflation rate data, as well as Eurozone industrial production, could cause some European Central Bank (ECB) speculation if they surprise investors and could drive movement in the Euro to Pound exchange rate.
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