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Pound Euro (GBP/EUR) Exchange Rate Range Bound in Wake of Ifo Business Climate

September 24, 2021 - Written by John Cameron


GBP/EUR Exchange Rate Fluctuates on Lower Business Confidence

The Pound (GBP) is trading level with the Euro (EUR) this morning as markets digest Germany’s Ifo business climate data. The business climate indicator for Germany declined for a third consecutive month to 98.8 in September of 2021.

At the time of writing, GBP/EUR is trading at €1.1672, virtually unchanged from today’s opening levels.

Euro (EUR) Trades Mixed on Lower Business Sentiment

The Euro is trading in a mixed range against its peers this morning in the wake of Germany’s Ifo business climate release. The data revealed the lowest reading in five months, as supply shortages in industry worsened and there are no signs such constrains will ease.

Despite the decline on last month, downside pressure seems limited by the proximity of September’s figure to consensus estimates of 98.9. Initial forecasts predicted a reading of 98.5 – which today’s data has exceeded.

Comments from Ifo President Clemens Fuest may inspire bearish trading however; Fuest remarks that:

‘Problems in the procurement of raw materials and intermediate products are putting the brakes on the German economy. Manufacturing is experiencing a bottleneck recession.’

In other news, the German election result will be revealed on Sunday, concluding pent-up tensions between the Christian Democratic Union (CDU), German Green Party (Die Gruenen) and Social Democratic Party (SPD).

According to analysts, the SPD remains in prime position to lead a new coalition, between the Social Democrats, Greens and smaller, pro-business party, the Federal Democrats (FDP). Policy differences may still pose headwinds, however, as party leaders take different stances on China and energy supply.

Pound (GBP) Suffers as Risk-on Mood Dwindles

The Pound (GBP) is trading mixed against its peers as Sterling faces risk-off headwinds over renewed Evergrande concerns. Developments involving the Chinese real-estate company have unnerved markets, as they await fresh updates on the company’s impending $83m offshore debt payment and next week’s $47.5m payment.

Investors had been soothed temporarily by Evergrande’s promise to repay some of its debt; various news outlets reassured that this was not another ‘Lehman moment’.

Fears did not entirely abate, though: as China’s second-biggest real-estate company, the collapse of Evergrande could seriously damage the Chinese economy, threatening the country’s trading relations with the rest of the world.

GBP losses are capped by tailwinds over yesterday’s Bank of England (BoE) interest rate decision and meeting minutes. BoE policymakers left interest rates unchanged, but conceded that that the case for modest tightening strengthened from August.

Two policymakers voted for an early end to government bond purchases, compared with only one in the August meeting; signalling an increase in hawkish sentiment. Optimism over the turn of events is carried over into today’s session.

GBP/EUR Exchange Rate Forecast: UK Data to Lend Pound Support?

Looking to this afternoon, a lack of Eurozone data means Pound dynamics are likely to drive the Pound Euro exchange rate. CBI distributive trades may have some small effect, while BoE monetary policy committee member Silvana Tenreyo’s speech could clarify the central bank’s outlook.

Into the weekend, the German elections may influence Euro trading, with uncertainty potentially weighing upon the single currency. If a straightforward coalition is announced, EUR could enjoy tailwinds.

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