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EUR to GBP Exchange Rate Holds Ground despite German Recession Jitters

October 4, 2019 - Written by Ben Hughes

Punctuating a week of poor Eurozone ecostats and fresh Brexit developments, the Euro and Pound are both highly week, and the Euro to British Pound (EUR/GBP) exchange rate is on track to end the week not too far from its opening levels as a result. With key Eurozone data due next week and the formal 31st of October Brexit date drawing ever closer, next week could be another jittery one for the European pair.

After opening this week at the level of 0.8901, EUR/GBP briefly tumbled, hitting the week’s low of 0.8845. However, the Pound’s recovery attempt was short-lived and EUR/GBP rebounded, hitting a half month high of 0.8931 on Tuesday.

Since then though, EUR/GBP movement has moderated slightly. At the time of writing on Friday, EUR/GBP trended just below the week’s opening levels at 0.8895, amid broad Eurozone economic concerns.

EUR Exchange Rates Steady on Rival Weakness and Data Anticipation

Most of this week’s Eurozone data continued to indicate that Germany’s economy was likely in recession, and that poor German manufacturing was dragging the rest of the bloc’s economic activity down with it.

Despite this though, the Euro saw slightly more resilient activity towards the end of the week.

The Euro often sees stronger demand when its major rival currencies are weakening, especially the US Dollar (USD) which the Euro shares a negative correlation with.

As a result, the Pound and the US Dollar’s (USD) poor performance in recent sessions has helped the Euro to climb amid a lack of other notable support. The US Dollar has been weaker on poor US data, which has supported the Euro.

On top of that, the Euro did find a little support thanks to today’s German construction PMI from September, which beat expectations and rose to a slow growth of 50.1.

Still, after this week’s poor Eurozone data, economists are overall not very optimistic about the Eurozone outlook. According to Chris Williamson, Chief Business Economist at Markit which compiled this week’s PMI data:

‘The Eurozone economy ground to a halt in September, the PMI surveys painting the darkest picture since the current period of expansion began in mid-2013. GDP looks set to rise by 0.1% at best in the third quarter, with signs of further momentum being lost as we head into the fourth quarter, meaning the risk of recession is now very real.’

GBP Exchange Rates Fall Back as Markets Doubt Brexit Deal Will be Reached

The Pound has had a volatile week, seeing gains and losses on minute to minute Brexit speculation, but seemingly hasn’t had the drive needed to sustain much in the way of gains against the Euro.

Speculation that UK Prime Minister Boris Johnson’s Brexit plan could lead to a softer Brexit briefly caused Sterling to jump in recent sessions, but markets ultimately doubted the proposals would be enough.

This left Sterling jittery in the middle of the week, but the British currency was modest and steady today.

With soft Brexit hopes doused again and the current formal Brexit date now less than a month away, no-deal Brexit fears are likely to persist, limiting the Pound’s potential for gains.

EUR/GBP Exchange Rate Forecast: German Factory Data and Brexit Developments in Focus

The Euro has seen steady performance in recent sessions despite a lack of solid support, but if upcoming German data impresses investors it could offer the Euro stronger ground to trade on.

Multiple notable German ecostats will be published throughout the coming week, starting with August factory orders and industrial production on Monday and Tuesday respectively.

German trade data will be published on Thursday, with the key September inflation rate due on Friday.

If the German data surprises to the upside, it could soften Eurozone recession fears and offer hopes of the bloc recovering from its slowdown.

However, continued weakness in the German data would drag more heavily on the Euro, and would deepen European Central Bank (ECB) easing speculation.

The Pound, on the other hand, will likely focus on Brexit developments. With mere weeks until the current Brexit date, markets are looking for signs that Brexit will be delayed.

The possibility of a no-deal Brexit persists and will keep pressure on Sterling’s potential for gains, which could make it overall easier for the Euro to Pound exchange rate to climb.
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