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Euro Pound (EUR/GBP) Exchange Rate Falls as German Economy Stuck in the ‘Slow Lane’

Euro Pound Sterling (EUR/GBP) Exchange Rate Slides as German Economy Stagnates

The Euro Pound Sterling (EUR/GBP) exchange rate slumped, leaving the pairing trading at around £0.8359.

The single currency remained under pressure after the second estimate of fourth quarter German GDP growth showed the economy stalled.

The data showed the bloc’s largest economy grew by just 0.4% over the course of 2019.

However, the country has been remained in a de facto stagnation since the middle of 2018. There has been no single explanation for the ongoing slowdown.

This weighed on the Euro, sending it lower against the Pound.

Commenting on this, Chief Economist ING Germany, Carsten Brzeski stated:

‘Looking ahead, recent tentative signs of a bottoming out in the manufacturing sector have been overshadowed by the possible adverse economic impact from the coronavirus, be it directly through weaker demand from Asia, or indirectly through supply chain disruptions. At the same time, some technical factors like the strong growth contribution from inventories in the fourth quarter as well as weather-driven strong activity in construction do not bode well for first quarter growth in 2020, as these factors often reverse on a quarterly basis.

‘All of this means that a rebound in the German economy is not in the cards, yet. In fact, in the absence of either a significant pick-up in global trade or additional fiscal stimulus, it is hard to see the German economy leaving the slow lane any time soon.’

Sterling (GBP) Rises Ahead of UK-EU Trade Talks

On Tuesday, the upcoming trade negotiations between the UK and European Union remained in focus.

EU ministers are set to meet later today to approve their mandate for the upcoming post-Brexit talks with the UK.

The EU mandate aims to offer the UK no tariffs and no quotas in the future in exchange for Britain not to undercut European companies with lower environmental, labour, tax and state aid standards.

However, Sterling was able to make significant gains despite the country not wanting to make such a commitment to the EU.

The UK has stressed its ‘primary objective in the negotiations is […] economic and political independence’ and that it wants to accept a similar deal the 27-nation bloc has with Canada.

According to Croatian state secretary for European affairs Andreja Metelko-Zgombic:

‘From our side we are ready to offer a substantial, ambitious, balanced and wide-ranging partnership.

‘Our negotiators will have good framework for future negotiations, it’s up to the parties when they sit at the table how they’re willing to go.’

Meanwhile, British ministers are set to meet with the Prime Minister to discuss the government’s opening stance for negotiations. The final agreement will be published on Thursday.

Euro Pound Outlook: Will a Dovish ECB Chief Weigh on EUR?

The Euro (EUR) could slip against the Pound (GBP) following a speech from European Central Bank (ECB) chief, Christine Lagarde.

If Lagarde is overly dovish, focusing on the ongoing risks of Covid-19, the single currency will fall.

Meanwhile, UK-EU tensions are likely to be the largest driver of Sterling due to a lack of economic data releases.

If tensions increase ahead of trade negotiations, the Euro Pound (EUR/GBP) exchange rate will remain flat.