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German Industrial Production Drops in June, Euro Pound (EUR GBP) Climbs Regardless

  • Euro Pound Exchange Rate Hits 0.9052 – Pound Euro Exchange Rate Slides to 1.1042
  • German Industrial Production Unexpectedly Drops in June – Euro Pound Unperturbed
  • Uncertainty Weighs on UK Growth – Demand for the Pound Remains Diminished

The Euro to Pound exchange rate has continued climbing this morning despite the release of some unexpectedly disappointing German industrial production figures.

Month-on-month industrial production in Germany fell by 1.1% in June, missing the 0.2% growth forecast and indeed coming short of the 1.2% increase in May.

This was the first decline in Germany’s industrial output since December of 2016, and was primarily driven by weakening construction activity and a lower output of consumer, capital and intermediate goods.

Contrastingly, energy output increased by 1.4%.

The year-on-year figure for June also disappointed, printing at 2.4% – far below the 3.7% forecast and indeed the previous month’s annual figure of 4.8%.

Overall, however, the single currency appears mostly unperturbed (continuing to express small gains against the Pound) – with the recent spate of dovish announcements from the Bank of England (BoE) preventing Sterling from capitalising on the news.

UK Wage Growth Sluggish, EUR GBP Remains at Highest Levels since 2011

The Euro to Pound exchange rate rocketed to its highest levels since 2011 last week after the BoE made a series of dovish announcements, the most significant of which being the revision of the UK’s 2017 economic growth forecast from 1.9% to 1.7% and its 2018 forecast down from 1.7% to 1.6%.

One of the primary issues affecting the UK economy and thus, the outlook for the Pound, is the issue of wage growth.

The latest figures from the Office for National Statistics demonstrated that annual growth for regular pay remains at 2.3% – the same as a year previously – despite a drop in unemployment to 4.5%.

With inflation hovering around 3% and real wages falling, the BoE is likely to continue to remain dovish. Governor of the BoE Mark Carney made similar assertions last week; citing the difference between these two figures as reason enough to have uncertainty about the UK’s economic growth prospects.

EUR GBP Forecast: Can the Euro (EUR) Maintain its Gains?

The data calendar for this week is fairly sparse initially, with the only significant announcements being tomorrow’s German trade balance, and Wednesday’s UK house price balance for July.

On Thursday, however, the UK will publish its influential total trade balance, as well as a range of stats relating to industrial production, manufacturing production and construction output.

Currently, the total trade deficit is expected to narrow slightly, a result that may prove to be mildly Pound-positive.

Germany’s data releases will be carefully watched, as Germany is the Eurozone’s largest economy. Friday will see the release of the nation’s consumer price index, with both the year-on-year figure and the month-on-month figure currently forecast to remain at 1.7% and 0.4% respectively.

Unchanged inflation could be all it takes for the single currency to hold its gains, especially if the UK’s Brexit talks continue to be staggered by in-fighting and controversy. However, if the figure disappoints Sterling could find some room to claw back some gains.