Homepage » News » EUR/GBP » EUR/GBP Exchange Rate Forecast: Euro/Pound Rallies despite German Industrial Production Contracting

EUR/GBP Exchange Rate Forecast: Euro/Pound Rallies despite German Industrial Production Contracting

Euro to Pound Sterling (EUR/GBP) Conversion Predicted to Strengthen Even after Mostly Disappointing European Data

The Euro to Pound Sterling (EUR/GBP) exchange rate advanced by around 0.6% on Tuesday afternoon.

Despite registering mostly disappointing domestic data the Euro gained  versus a number of its major peers. December’s German Industrial Production unexpectedly contracted on a monthly basis, and also failed to meet with the median market forecast on an annual basis. In addition, December’s German Trade Balance saw the surplus reduced from 20.5 billion to 18.8 billion after exports contracted by -1.6%. Additionally, December’s German Current Account failed to advance in line with the market projection.

Analysts from Bundesbank are still positive regarding Germany’s economic outlook, however, stating; ‘With export markets outside the Euro area expected to rebound and economic growth within the Euro area gaining a little more traction, the healthy underlying state of the German economy should stand out even more clearly over the next two years,’ the German Bundesbank said in its December 2015 monthly report.

The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7799.

Pound Sterling to Euro (GBP/EUR) Conversion Rate Predicted to Trend Lower Even after UK Trade Deficit Narrowed

On Tuesday morning the British Pound was trending narrowly versus the Euro after domestic data stalled a long-run of Sterling losses. However, this proved short-lived as European stocks volatility weighed on Sterling demand. December’s Total Trade Balance was predicted to show the deficit was reduced from -£4031 to -£3000, but the actual result saw a further reduction to -£2709. Despite the positive headline figure, some analysts stated that the UK’s trade deficit will not be reduced any time soon with external risks weighing on demand for exports. Samuel Tombs, an economist at Pantheon Macroeconomics, said that ‘the flat underlying trade deficit masks a deteriorating performance, because sterling’s appreciation has made imports much cheaper.’

Meanwhile, Capital Economics analyst Paul Hollingsworth said that the UK ‘is clearly not immune to a weaker external environment,’ and that any progress made in reducing the deficit ‘is likely to be extremely slow in the near term, leaving the recovery reliant on domestic demand.’

The Euro to Pound Sterling (EUR/GBP) exchange rate dropped to a low of 0.7729 during Tuesday’s European session.

Euro to Pound Sterling Exchange Rate Forecast: UK Industrial/Manufacturing Production Data to Provoke Volatility

Given the absence of further domestic data pertaining to either the UK or Europe, there is a chance that the EUR/GBP exchange rate will continue to hold within a limited range. With that being said, US data may impact on the pairing given EUR/USD negative correlation.  Wednesday is likely to see heightened EUR/GBP volatility with British Manufacturing and Industrial Production data due for publication. French and Italian Industrial Production data may also cause Euro to Pound Sterling (EUR/GBP) exchange rate volatility tomorrow.

The Euro to Pound Sterling (EUR/GBP) exchange rate reached a high of 0.7851 during Tuesday’s European session.