Global Economic Worries See Euro Pound (EUR/GBP) Exchange Rate Slip
Resurgent worries over the global economic impact of the ongoing Covid-19 outbreak kept the Euro to Pound Sterling (EUR/GBP) exchange rate under pressure on Thursday.
As the infection rate saw a fresh spike this undermined earlier market hopes that the spread of the virus could be easing, suggesting that further economic disruption is likely.
Given the sharp slowdown seen in December’s Eurozone industrial production data investors remained wary of the potential for a deeper decline in economic growth within the currency union.
With markets bracing for the release of the fourth quarter German and Eurozone gross domestic product on Friday support for the Euro (EUR) generally diminished.
The release of the European Commission’s winter forecast added to the bearish mood of the Euro, meanwhile.
Although the Commission left its growth forecasts unchanged it warned that the European economy still faces key downside risks, while indicating that Germany, Italy and France are likely to post the lowest growth for the year.
Fresh Signs of German Growth Slowdown Forecast to Weigh on EUR Exchange Rates
If the fourth quarter German gross domestic product falls short of forecast this could see EUR exchange rates trending sharply lower across the board heading into the weekend.
Unless the Eurozone’s powerhouse economy can deliver a positive quarterly growth rate the single currency looks set to weaken further.
With growth in the first quarter of 2020 already appearing on course to slow the growing risk of a potential return to recession could weigh heavily on the Euro.
On the other hand, evidence of greater resilience within the German economy could help EUR exchange rates to return to a stronger footing in the short term.
A modest show of growth from the fourth quarter could help to ease concerns over the risk of a deeper slowdown, even in the face of slowing global growth momentum.
As long as markets see reason to fear the German economy slipping back into a state of contraction, though, the EUR/GBP exchange rate may remain biased to the downside.
Strong UK Housing Market Supports Pound Sterling Demand
As the RICS house price index saw an unexpectedly large surge in January, strengthening 17% on the month, this encouraged greater support for Pound Sterling (GBP).
This offered further evidence that the UK housing market saw a resurgence at the start of 2020, benefitting from the reduced political uncertainty that followed December’s general election.
Even so, the potential for GBP exchange rate gains could still prove limited in the days ahead thanks to the persistent uncertainty surrounding the UK’s future relationship with the EU.
Until investors see reason to bet that the two sides will reach a fresh trade agreement before the end of the transition period an element of downside pressure looks set to persist.