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Euro Pound (EUR/GBP) Exchange Rate Sinks as German Growth Figures Contract in Second Quarter

August 14, 2019 - Written by John Cameron

EUR/GBP Exchange Rate Falls as German Recession Fears Increase

The Euro Pound (EUR/GBP) exchange rate fell today, leaving the pairing fluctuating around £0.924 following this morning’s publication of the German growth figures for the second quarter, which contracted to a worse-than-expected -0.1%.

Carsten Brzeski, an analyst at ING, was downbeat:

‘Today’s GDP report definitely marks the end of a golden decade for the German economy. Trade conflicts, global uncertainty and the struggling automotive sector have finally brought (it)... down on its knee.’

However, as Germany teeters on the edge of a possible recession in the third quarter, Euro traders have become increasingly skittish after today’s report.

Analysts at Reuters commented:

‘Slumping exports sent Germany’s economy into reverse in the second quarter, with prospects of an early recovery slim as its manufacturers struggle at the sharp end of a global slowdown amplified by tariff conflicts and fallout from Brexit.’

GBP/EUR Exchange Rate Edges Higher as UK Inflation Exceeds BoE’s Targets

Meanwhile, the Pound benefited from the publication of the UK inflation figures for July today, which rose above forecast from 2.0% to 2.1%.

As a result, Sterling traders have been buoyed by hopes that the Bank of England’s (BoE) policy makers will leave interest rates untouched in the scheduled meeting in September.

Today’s data also exceeded the BoE’s target of 2%.

James Smith, a Developing Markets Analyst at ING, said:

‘[W]hile CPI has the potential to ease in coming months, we suspect the Bank of England will continue to focus on the strong wage growth backdrop. Unlike in other global economies, a UK rate cut seems unlikely in the near-term.’

Brexit has dominated headlines today, following Prime Minister Boris Johnson’s public PMQs in which he described the ‘terrible collaboration’ between MPs and the EU, while continuing to refuse to rule out suspending Parliament to force through a no-deal on October 31.

Boris Johnson commented:

‘[O]ur European friends are not moving in their willingness to compromise, they’re not compromising at all on the withdrawal agreement even though it’s been thrown out three times, they’re sticking to every letter, every comma of the withdrawal agreement – including the backstop – because they still think Brexit can be blocked in parliament.’

EUR/GBP Outlook: UK Retail Sales Figures in Spotlight

European markets will be closed for the bank holiday Assumption Day tomorrow.

Meanwhile, Sterling traders will be awaiting the UK retail sales figures for July.

As these are expected to ease from 3.8% to 2.6% we could see the Pound lose some of its gains against the European currency tomorrow.

Looking ahead, the EUR/GBP exchange rate is likely to remain volatile as increasing global economic fears increase while fears of a recession for the German economy is likely to continue to haunt European markets.

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