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Pound Sterling Euro (GBP/EUR) Exchange Rate Muted as UK Economy Shrinks in August

October 10, 2019 - Written by John Cameron

Pound Euro (GBP/EUR) Exchange Rate Left Flat as UK Film and TV Production Buoys GDP Growth

The Pound Sterling Euro (GBP/EUR) exchange rate was left muted and the pairing is currently trading at around €1.1101.

Sterling was left under pressure as data revealed that the UK economy shrank by -0.1% in August, the first monthly contraction since April.

However, the Office for National Statistics (ONS) revealed that in the three months to August the economy expanded by a higher-than-forecast 0.3%.

Growth in June and July were upwardly revised, meaning that if the UK is to fall into a recession in Q3, September’s growth would need to be very weak.

Data revealed that in August the dominant service sector growth provided the bulk of growth while manufacturing slumped -0.7%.

The ONS showed that the UK’s film and TV production industry buoyed growth, and head of GDP Rob Kent-Smith explained:

‘Growth increased in the latest three months, despite a weak performance across manufacturing, with TV and film production helping to boost the services sector.’

Euro (EUR) Muted as Weak German Exports Reinforce Recession Fears

On Thursday, Germany’s August trade balance data revealed that exports slumped further than expected, reinforcing expectations that the country is being pushed into a recession by a manufacturing slowdown.

Data revealed that monthly exports from the bloc’s largest economy slumped -1.8% while imports edged up 0.5%.

The drop in exports was the steepest since April which likely left single currency sentiment dampened, causing the pairing to remain flat on Thursday morning.

Thanks to a slowing global economy, US-China trade tensions and Brexit uncertainty, German factories that are reliant on exports, are suffering.

Sterling (GBP) Left Flat as PM ‘Cautiously Optimistic’ About Brexit Deal

On Wednesday the Pound jumped following reports of a breakthrough on the Irish backstop, before slumping after reports were deemed false by the bloc’s officials.

The Times reported that the EU was prepared to offer a mechanism to allow the Northern Irish assembly to leave the backstop in an unspecified number of years.

Sterling was left on the back foot after the chief whip of the Democratic Unionist Party (DUP) said the party would oppose any mechanism.

Added to this, European Union officials stated that no such concession has been made, and an unnamed official from Brussels said that ‘no bold new offer is coming from the EU side at this stage’.

Meanwhile, Prime Minister Boris Johnson and Irish leader Leo Varadkar are set to meet for further Brexit discussions.

Downing Street has said the meeting is to allow for ‘detailed discussions’ on the process of securing a deal, and the Prime Minister added that he remains ‘cautiously optimistic’ about securing a deal.

Pound Euro Outlook: Will Weak German Inflation Weigh on EUR?

Looking ahead to Friday, the Euro (EUR) is likely to slump against the Pound (GBP) following the release of inflation data from the bloc’s largest economy.

If September’s German inflation rate stagnates, and annual inflation continues to move further from the European Central Bank’s (ECB) target, the single currency will slide.

Meanwhile, Brexit is likely to remain one of the main catalysts for movement in Pound exchange rates.

If there are further reports suggesting that it is unlikely the UK will reach a Brexit deal with the EU before the October deadline, the Pound Euro (GBP/EUR) exchange rate is likely to be left muted.

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