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Euro Pound (EUR/GBP) Exchange Rate Sinks as German Business Climate Drops to 6-Month Low

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Euro Pound Exchange Rate Tumbles on Disappointing German Data

The Euro Pound (EUR/GBP) exchange rate has fallen this morning following the publication of lower-than-expected German Ifo data. Germany’s business climate fell to 97.7 from 98.9 last month.

At the time of writing, EUR/GBP is trading at £0.8451, down 0.2% from today’s opening levels.

Euro (EUR) Trends Down as Supply Bottlenecks Weigh Upon German Economy

The Euro (EUR) is sliding against the majority of its peers this morning following a downbeat data release from Germany.

The Ifo Business Climate indicator dropped to 97.7 in October 2021, the lowest level since April and below market expectations. Supply bottlenecks are largely blamed for the depressed reading, as factory output is diminished.

In manufacturing in particular, supply bottlenecks drove capacity utilization down 2.1 percentage points to 84.7%. According to Ifo economist Klaus Wohlrabe:

‘The bottlenecks for intermediate goods and raw materials are spilling over from manufacturing to other sectors of the economy too, such as retailing, meaning not every Christmas present will be available for delivery in time.’

Factory closures in Asia as a result of spreading coronavirus infections are expected to exacerbate material shortages in Germany.

Unsurprisingly, companies across manufacturing, services and trade are less optimistic about the coming months. Wohlrade predicts that ongoing supply problems will slow down growth to roughly 0.5% in the fourth quarter: on Wednesday, the government is likely to slash its forecast for economic growth also.

Pound (GBP) Trades Mixed Ahead of Tenreyro Speech

The Pound (GBP) is trading in a mixed range this morning as a lack of significant data leaves the currency vulnerable to losses. A speech from Bank of England (BoE) policymaker Silvana Tenreyro may influence trading this afternoon.

Meanwhile, external factors supply both headwinds and tailwinds, as Sterling sentiment is alternately buoyed by UK banks’ strong performance, then dented as petrol prices skyrocket. British-headquartered HSBC managed to shrug off concerns about property debt in its Chinese market as it beat City forecasts with its third quarter earnings.

HSBC said improving economic conditions meant that customers were able to repay their debts on time, helping it to increase its profits: pretax profits rose to $5.4bn (£3.9bn) in the three months to 30 September.

Meanwhile, average petrol prices rose to £142.94 a litre on Sunday, hitting another record high. Analysts predict that costs could rise further in the coming weeks as the global energy crisis continues to drive oil markets.

Simon Williams, a spokesperson for the RAC, remarked:

‘[Today is] a truly a dark day for drivers [which will] hurt many household budgets and no doubt have knock-on implications for the wider economy.’

If Silvana Tenreyro’s speech this afternoon strikes a similar dovish tone to her last address, the Pound may suffer further losses.

EUR/GBP Exchange Rate Forecast: Pound to Hold Gains on Banks’ Fortunes?

Looking ahead, today’s data from Germany is likely to continue weighing upon EUR sentiment for the remainder of the session. Pound investors appear currently focused upon the UK’s upbeat news: although a dovish speech from the BoE’s Tenreyro later today may dampen traders’ optimism.

In the meantime, the Euro Pound exchange rate will likely remain subdued, although any considerable weakness in the US Dollar (USD) may support EUR trading.