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Pound Euro Exchange Rate News: GBP/EUR Steady Following Shock Slump in German Industrial Production

October 7, 2020 - Written by John Cameron

Euro (EUR) Undermined by Surprise Slump in Germany Industrial Production

The Euro (EUR) is struggling to find support this morning after Germany reported a shock fall in industrial production.

According to data published by German statistics agency, Destatis, domestic factory output contracted 0.2% in August having expanded 1.4% in July.

This missed expectations for a 1.5% expansion and was the first slump in production since April, at the height of the coronavirus crisis.

While the disappointing result is unlikely to significantly impact Germany’s economic rebound in the third quarter, today’s figures are likely to add to concerns that the recovery will not be sustained through to the end of 2020.

Carsten Brzeski, Global Head of Macro for ING Research, comments:

‘Disappointing industrial production data will not stop the German economy's surge in the third quarter, but it illustrates the difference between rebound and recover.

‘In fact assessing this kind of backward-looking data is currently like looking at pictures of a great summer holiday, the economic prospects for the final quarter resemble the current view out of the window at 8am in the morning: grey and rainy.

‘While yesterday’s industrial orders data gave hope that the manufacturing rebound could last into the final quarter, new restrictions on the back of an increasing number of new infections don’t bode well for the service sector.

‘The fact that fewer activities can be organised outside should also leave its mark on consumption and services. Winter is coming.’

Pound (GBP) Muted as Fisheries Dispute Stalls Brexit Talks

At the same time, the Pound (GBP) is also rangebound this morning amidst ongoing concerns over the state of Brexit talks.

While media reports suggest that positive progress has been made on a number of outstanding issues in recent days, it appears that the dispute over post-Brexit fishing rights could still torpedo talks.

This comes as French President Emmanuel Macron refuses to give an inch in his demand that the French fishing industry retains the same access to UK fishing waters as it enjoys today.

Jean-Pierre Pont, a lawmaker within Macron’s party, La Republique En Marche, said:

‘Fishing shouldn’t be sacrificed or used for bartering. Every time Barnier speaks he tells us there will be no agreement if there’s no agreement on fishing. For now this position is defended by the whole EU. A no-deal would be a disaster -- but also for the U.K.’

While the fishing industry is of little economic significance to either the UK or France, but fishing rights are a highly politicised issue and neither side looks willing to budge on the issue.

With time quickly running out before the EU summit on Brexit on 15 October, the continued deadlock in talks threatens to put some considerable pressure on Sterling.

GBP/EUR Exchange Rate Forecast: Dovish Lagarde to Put More Pressure on the Euro?

Still to come today will be a speech by European Central Bank President Christine Lagarde.

Lagarde has struck a notable cautious tone in recent weeks and this is not expected to change today, with the ECB president likely to make calls for more fiscal stimulus, while also potentially hinting at more monetary easing from the bank as well.

Meanwhile, influencing the Pound Euro (GBP/EUR) exchange rate in the second half of the week will be the publication of the UK’s latest monthly GDP release.

Will the UK economy have continued to expand at a healthy pace in August or will a slowing of growth undermine Sterling sentiment?

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