Euro to Pound Exchange Rate Falls as German Business Morale Suffers

January 26, 2021 - Written by John Cameron

STORY LINK Euro to Pound Exchange Rate Falls as German Business Morale Suffers

EUR/GBP Exchange Rate Sinks as Outlook for Eurozone’s Economy Darkens on ‘Little Confidence’

The Euro to Pound exchange rate fell today, with the pairing currently fluctuating around £0.88.

The Euro suffered today following Monday’s publication of the latest German business morale figure, which printed below forecasts and dampened confidence in the Eurozone’s largest economy.

IFO Economist Kalus Wohlrabe said on Monday:

‘The German economy is starting the year with little confidence.’

As a result, demand for the Euro has been compromised as the effects of Germany’s national lockdown are expected to reverberate throughout the Eurozone.

Christine Lagarde, the European Central Bank’s President, also warned that the Eurozone economy’s recovery was facing a high-level of uncertainty but added that the economy was not yet totally derailed.

Today also saw the International Monetary Fund (IMF) announce its latest estimates for the global economy going forward.

The US economy is now forecast to grow by 5.1% this year, while GDP in the Eurozone is forecast to rise by 4.2%.

However, concerns over the Eurozone’s delayed rollout of the Covid-19 vaccines has weighed on investor confidence in the bloc.

Any further complications over the AstraZeneca vaccine, for example, could further weigh on the EUR/GBP exchange rate.

Pound Rises Despite IMF Downgrading the UK’s Economic Outlook

Sterling rose against the single currency today despite the IMF downgrading its outlook for the UK economy.

Britain’s economy is expected to grow by 4.5% this year, rather than the 5.9% increase that was predicted last October.

David Madden, an analyst at CMC Markets, commented:

‘The U.K. has suffered greatly in terms of case numbers, but there is some hope on the horizon as the country has issued in excess of 7 million vaccinations, putting it miles ahead of Germany, France, Italy and Spain. The upbeat mood in stocks today might be because a lot of negative news has already been baked into the markets.’

In UK economic data, today saw the publication of the latest ILO Unemployment Rate report or November, which rose by 5% – its highest level in four-years.

Samuel Tombs, the chief UK economist at Pantheon, said that the ‘day of reckoning’ was yet to come for employment.

Tombs said:

‘The [furlough scheme] is due to be wound up at the end of April, and additional measures to support employment that will be announced in the Budget on 3 March probably will not be anywhere near as generous for firms.’

EUR/GBP Forecast: Could Falling German Consumer Confidence Limit the Single Currency?

Pound traders will continue to monitor the UK’s Covid-19 epidemic this week.

If vaccine supplies show any signs of being problematic in the next few weeks or months, then we could see Sterling suffer.

However, if the Government’s vaccination rollout continues to intensify, then UK economic mood could improve and boost the GBP/EUR exchange rate.

Euro investors will be awaiting tomorrow’s release of February’s German GfK Consumer Confidence gauge.

If the outlook for the Eurozone’s powerhouse economy deteriorates, however, the EUR/GBP exchange rate could fall.

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TAGS: Euro Pound Forecasts