Euro to British Pound exchange rate continues to climb despite slowing German trade
Tuesday saw the publication of most of this week’s most notable Eurozone ecostats, but they didn’t have a particularly influential effect on the direction of the Euro to British Pound (EUR/GBP) exchange rate. Instead, the Pound remains limp as ‘no deal’ Brexit concerns persist and leave the British currency highly unappealing.
Weak Eurozone data and Brexit jitters caused EUR/GBP to only edge slightly higher last week, from 0.8895 to 0.8898, but so far this week the pair has already put in stronger gains. On Tuesday morning, EUR/GBP touched on a high of 0.8940 – the pair’s best level in a fortnight.
Euro (EUR) Climbs despite Some Misses in German Data
This week’s most important Eurozone ecostats have been June datasets from Germany, and many of them fell short of market expectations.
Following Monday’s surprise -4% contraction in German factory orders, Germany’s June trade balance was published on Tuesday with more mixed results.
The overall trade surplus rose as expected, from €19.6b to €21.8b, while the seasonally adjusted trade balance unexpectedly slipped from €20.4b to €19.3b.
Notably though, the latest exports data did beat forecasts by slowing from 1.7% to a stagnant 0%, rather than the forecast -0.4%. Imports were much higher than expected too.
On the other hand, Germany’s June industrial production results contracted at a worse-than-forecast -0.9%.
Initially, these stats caused some concerns among investors that Germany’s economy was already beginning to show signs of being negatively influenced by US trade protectionism and the possibility of a US-sparked trade war.
However, analysts on Tuesday noted that all the June slowdowns followed strong data in May, suggesting that the weakness may be temporary and could steady in the coming months.
According to Carsten Brzeski from ING Bank:
‘After yesterday’s disappointing new orders data, speculations about an imminent downswing of the German economy have gained new momentum. Intuitively, weak June data can be associated with trade tensions. However, in our view, this intuition is not so straight-forward. The analysis of the German economy requires more nuances.’
Market demand for the US Dollar (USD) was a little weaker on Tuesday too. Due to the negative correlation between the Euro and US Dollar, this left the Euro a little more appealing.
Pound (GBP) Kept Under Pressure by ‘No Deal’ Brexit Concerns
Since last week, Brexit jitters have returned in full force, hitting headlines and the appeal of the Pound.
The Bank of England’s (BoE) August interest rate hike was ultimately overshadowed by BoE Governor Mark Carney’s concerns that a ‘no deal’ Brexit was uncomfortably possible.
Carney even indicated that UK interest rates could be cut again if the Brexit process ends badly or with no UK-EU deal.
Then over the weekend, UK Trade Secretary Liam Fox said that the chances of a ‘no deal’ Brexit were currently as high as 60-40. Attempts from the UK government to calm markets since Fox’s comments came out have had limited impact.
Amid a lack of notable UK ecostats published in recent sessions, Pound movement has been dominated by Brexit concerns and this has kept the currency under pressure.
EUR/GBP Forecast: Brexit Developments and UK Growth Results in Focus
No notable data from the Eurozone or UK will be published ahead of Friday’s key session, though the latest European Central Bank (ECB) economic bulletin could influence the Euro on Thursday.
With the economic calendar relatively quiet until Friday, the Euro to Pound exchange rate is more likely to react to political developments instead, particularly any Brexit news.
If the UK government and EU negotiators continue to aim for a ‘soft Brexit’ and negotiations show promise, the Pound could become slightly more appealing.
However, so long as ‘no deal’ Brexit fears persist and as long as the possibility remains, this is likely to keep pressure on Pound movement.
In the absence of any notable Brexit developments, the Euro to Pound exchange rate may instead react to Friday’s key UK Gross Domestic Product (GDP) growth results, or France’s June industrial production stats which are also due on Friday.