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Euro Pound (EUR GBP) Stabilises as German GDP Hits its Mark

  • Euro Pound Hits 0.9193 – Pound Euro Hits 1.0874
  • German GDP Hits its MarkEuro Mildly Affected
  • Brexit Negotiations Present Division Next Round of Negotiations Begins Next Week

The Euro Pound exchange rate stabilised this morning after yesterday’s dip, with Germany’s GDP figures printing in line with estimates, and markets awaiting European Central Bank (ECB) President Mario Draghi’s speech at this year’s Jackson Hole Symposium.

Initial stagnation can primarily be attributed to markets awaiting Draghi’s speech, as whilst he is not currently deemed likely to discuss monetary policy – especially after his speech earlier in the week discussing quantitative easing – he could still offer some insight into the ECB’s current thought process.

On the data front, Germany’s Q2 GDP demonstrated growth of 2.10%, year-on-year, in line with previous estimates but higher than the 2% growth of the previous period.

The quarter-on-quarter figure, however, slowed slightly with expansion of 0.6% – down from the previous period’s 0.7% growth but in-line with estimations. This can be attributed to the dragging pace of Q2 foreign trade.

The overall sentiment is that these figures remain promising for the Eurozone, despite the quarter-on-quarter drop. Indeed, Jack Allen, from Capital Economics, asserted that the performance of the region as a whole was reason enough to not be concerned, stating:

‘More important than the German Economy expanding by a touch less than expected in Q2 is that the region as a whole is performing well. So we still think that in October the Bank will announce its intention to taper quantitative easing in the first half of 2018’.

This is, in essence, the reason the Euro remains the more attractive option within this pairing, especially with the Pound continually hindered by Brexit-related uncertainty.

Next Round of Brexit Negotiations Ahead, Euro Pound (EUR GBP) Volatility Forecast

Divisions between the EU and Britain are likely to be further revealed next week as both sides will be meeting for another round of talks.

UK Brexit Minister David Davis recently made clear his intentions that trade talks should begin, despite subjects like the Brexit bill and the rights of citizens (in respect to freedom of movement) still not being fully concluded.

This is much to the dissatisfaction of the EU Commissioners, who insist on seeing ‘sufficient progress’ on said subjects before proceeding. Understandably this stalemate has left talks, thus far, stagnated.

If this continues next week then Sterling could come under even more pressure, especially as time is ticking away before the 2019 deadline, risking the prospect that Britain might leave the EU in ‘cliff-edge’ exit (a source of significant anxiety for businesses in the UK).

An EU diplomat noted:

‘Many matters, including the financial aspect most importantly, remain unclear from the British side. So the EU expects no big progress, which makes any ’significant progress’ less likely in October’.

News from the build-up and aftermath of today’s Jackson Hole symposium in Wyoming will decide in what form this trading week ends.

Next week markets will be watching a variety of Eurozone data releases, notably Eurozone inflation levels and French GDP figures, with the UK’s data calendar remaining relatively sparse.