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Pound Euro Exchange Rate News: GBP/EUR Directionless as German Consumer Morale Slumps

December 21, 2021 - Written by John Cameron

GBP/EUR Muted as German Household Sentiment Deteriorates

The Pound to Euro (GBP/EUR) exchange rate is trading in a narrow range in the beginning of today’s session in response to a larger-than-expected drop in German consumer confidence.

At the time of writing, the GBP/EUR exchange rate is trading at approximately €1.1726 with minimal market movement.

Euro (EUR) Subdued Following Slump in German Consumer Confidence

The Euro (EUR) is trading in a narrow range against the Pound (GBP) this morning as Germany’s latest consumer confidence figures decline drastically.

German consumer confidence data for January has plummeted to -6.8 following December’s downwardly revised -1.8 and has fallen further than the market forecast of -2.7.

January’s reading is the lowest in 6 months. This is in response to a rising inflation and a significant increase in coronavirus case numbers.

At present, Germany is in the fourth wave of Covid infections and is preparing for a fifth driven by the rapid spread of the Omicron variant.

Restrictions have been implemented to slow this surge, such as not allowing unvaccinated people to attend crowded areas, however this has injured the Christmas trade.

Rolf Buerkl, consumer expert at GfK, said:

‘High case numbers due to the fourth wave of the coronavirus pandemic with further restrictions, as well as significantly increased prices, are putting more and more pressure on consumer sentiment.’

Pound (GBP) Muted as Net Borrowing Surges

Meanwhile, the Pound (GBP) is mixed against the Euro (EUR) this morning in response to the UK’s public sector net borrowing for November printing higher than predicted.

The UK government borrowed £12.4bn to balance the books in October and this had been expected to increase to £ in November, but exceeded forecasts by reaching £17.4bn.

Excluding public sector banks, net debt became £2317.7bn by the end of November, equivalent to a 9.61% of GDP, an amount not reached since the 1960’s,though it is lower than in November 2020.

Borrowing may continue to rise if this new coronavirus variant causes the economy to slow further, as is currently expected.

Bethany Beckett, a UK economist at Capital Economics, said:

‘These data predate the recent surge in coronavirus infections caused by the Omicron variant, with a near-term tightening of virus restrictions once again a possibility.

Although the economy has got better at coping with restrictions with each new wave, we still suspect it would prompt a deterioration in the public finances via lower tax revenues and the potential reintroduction of government support schemes.’

GBP/EUR Exchange Rate Forecast: Omicron Remains a Worrying Factor for Both EUR and GBP

Looking ahead, the Pound Euro (GBP/EUR) exchange rate may remain vulnerable to market movement due to an absence of data expected to be released throughout the rest of the week’s session.

As we head towards Christmas, the global Omicron situation continues to be a source of uncertainty for both Sterling and the single currency as cases increase.

The severity of the new strain is still relatively unknown, however is spreading faster than previous variants which is cause for concern.

The UK implemented Plan B last week to reduce omicron cases, and a ‘Plan C’ may potentially be instated with additional restrictions if cases remain high.

If ‘Plan C’ or a ‘circuit breaker’ lockdown is imposed then the UK economy is likely to come under further pressure, hampering GBP’s appeal.

Furthermore, EUR is also likely to feel the burden of Omicron as European economies strain under the pressure.

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