Euro Pound Sterling (EUR/GBP) Exchange Rate Muted as Bloc’s Industrial Output Plummets in April
UPDATE: The Euro Pound Sterling (EUR/GBP) exchange rate remained flat this afternoon, leaving the pairing trading at around €1.1142.
Data from the Eurozone revealed industrial output suffered its worst decline on record in April due to coronavirus lockdowns.
Production slumped by -17.1% between March and April, and at an annual rate of -28%. Analysts expect this to mark the bottom of activity in the bloc which weighed on the single currency and left EUR/GBP flat.
Commenting on this, ING’s Eurozone Senior Economist, Bert Colijn noted:
‘As restrictions on industry have been gradually lifted since late April, expectations are that May will be the start of a drawn out recovery of output. While expectations of production have indeed improved in surveys, we do see that new orders have continued to come down in May. That means that expectations of a V-shaped recovery for industry would be far too optimistic. As lingering concerns like a new trade war and Brexit continue to be risks to the recovery phase in the months ahead, it could be a long road ahead before industry reaches output seen at the start of 2020. So plenty of risks surrounding industry at the moment, but the recent easing of lockdowns means that activity in April almost certainly marked the bottom.’
Euro Pound Sterling (EUR/GBP) Exchange Rate Muted as Markets ‘Desensitised’ to Record-Low UK GDP
The Euro Pound Sterling (EUR/GBP) exchange rate was left flat this morning. This left the pairing trading at around £0.8968.
The Pound was left under pressure on Friday morning after a slew of disappointing data releases.
Data showed the British economy suffered a record 20.4% contraction in April as the country spent the month in a strict coronavirus lockdown.
Analysts expect the historic decline is going to be the low point of the slow before the country begins a long and slow path to recovery.
The Office for National Statistics also showed that in the three months to April, GDP tumbled by -10.4% compared to the previous three-month period.
Britain’s finance minister, Rishi Sunak noted:
‘In line with many other economies around the world, coronavirus is having a severe impact on our economy.’
Commenting on this morning’s dire growth data, ING’s developed markets economist, James Smith said:
‘Today’s data won’t necessarily come as much of as a surprise to markets – it shows the damage was a little greater than expected, but the reality is that markets have become fairly desensitised to big numbers over recent weeks. We know too that April was the first month to be fully encompassed by the lockdown. But these figures are nevertheless shocking, and it goes without saying that this kind of fall in activity is virtually unprecedented, either in scale or speed.
‘Social distancing constraints, consumer and business caution, as well as Brexit, all pose challenges to the UK economic recovery. This is set to keep the pressure on the Bank of England to continue expanding its balance sheet, and we expect a further increase in its quantitative easing programme next week.’
Euro (EUR) Retreats from Three-Month High
The safe-haven Euro was left flat against the Pound on Friday as safer bets were supported on growing doubts over a quick recovery from the coronavirus pandemic.
The growing Covid-19 infections around the world added to the US Federal Reserve’s dire economic assessment earlier this week. Downbeat forecasts from the world’s largest economy sparked a sell-off and increased risk aversion.
The coronavirus pandemic is not near being completely contained, as cases continued to rise. Many developing countries continue to struggle to keep the outbreak of the virus under control.
However, the single currency gave up earlier gains when it jumped to a three-month high on Wednesday following the Fed meeting.
Euro Pound Outlook: Eurozone Coronavirus Recovery Fund in Focus
Looking ahead, the Euro (EUR) could suffer losses against the Pound (GBP) as Europe faces tough negotiations over recovery fund next week.
However, if reports reveal the bloc is likely to agree on a recovery fund to help those hardest hit by the virus in the Eurozone, it could boost the currency.
Meanwhile, Sterling could be left under pressure as trader attention turns back to post-Brexit negotiations and the risk of negative rates.
If reports reveal trade talks between the UK and EU are unlikely to see any breakthroughs, while negative rate speculation remains in focus, the Euro Pound (EUR/GBP) exchange rate will edge higher.