Heightened German Recession Fears Send Pound Sterling Euro (GBP/EUR) Exchange Rate Higher

September 5, 2019 - Written by John Cameron

STORY LINK Heightened German Recession Fears Send Pound Sterling Euro (GBP/EUR) Exchange Rate Higher

Pound Euro (GBP/EUR) Exchange Rate Jumps as German Factory Orders Disappoint

The Pound Sterling Euro (GBP/EUR) exchange rate rose and the pairing is currently trading at an inter-bank rate of €1.1164.

Disappointing German factory orders in July has increased fears the bloc’s largest economy is in a recession.

Factory orders slumped by a lower-than-forecast -2.7% in July, following June’s rise of 2.7%.

Germany has placed the blame on the ongoing US-China trade war, with Berlin’s Economy Minister stating:

‘New orders for industry have overall made a weak start to the third quarter.

‘Given still-smouldering international trade conflicts and restrained business expectations, there is no sign of a fundamental improvement in the coming months.’

Euro (EUR) Falls as German Construction Plummets to Lowest Level in Five Years

The Euro slumped as Thursday’s German construction PMI plummeted at its sharpest rate since June 2014.

Germany’s headline construction PMI slumped to 46.3 in August from 49.5 in July.

This result also marked the first back-to-back declines in total construction activity in five years.

Commenting on the data, Phil Smith, Principal Economist at IHS Markit noted:

‘Signs of a rebound in the construction sector following the slowdown in the second quarter haven’t yet materialised. Instead, trends have turned increasingly negative, with new orders and expectations sinking deeper into contraction territory amid reports of growing concerns among clients about an economic slowdown and a lack of tender opportunities from the public sector.

‘Homebuilding showed renewed weakness in August and joined the commercial and civil engineering categories in contraction, resulting in a decrease in total industry activity that surpasses anything we’ve seen since June 2014.’

Sterling (GBP) Rises as MPs Approve Brexit Delay Bill

Meanwhile, Sterling received an upswing of support as reports suggested the UK could avoid leaving the EU without a deal.

On Wednesday, MPs voted in favour of the Hilary Benn bill which aims to delay Brexit by three months unless a deal is agreed by 19 October.

The bill is now scheduled to be put to the House of Lords for approval on Friday.

However, Boris Johnson has argued this would leave him incapable of negotiating a deal with the EU.

Added to this, Johnson’s second defeat saw MPs reject his call for a general election in October.

The rejection of an election so close to the Brexit deadline buoyed Sterling as this temporarily prevented further instability.

Despite this, there is still no clarity over how or if the UK and EU will separate.

Pound Euro Outlook: Disappointing German Industrial Production to Drag EUR Further?

Looking ahead to Friday, the Pound (GBP) could continue to edge up against the Euro (EUR) as the Hilary Benn bill heads to the House of Lords.

If the Lords approve the Brexit delay bill, Sterling could be provided with an upswing of support.

Meanwhile, the Euro could sink further following the release of July’s German industrial production data.

If production does not rise as high as forecast, or plummets, the Pound Euro (GBP/EUR) exchange rate could rise.

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TAGS: Pound Euro Forecasts