Euro to Pound Exchange Rate Hit by Eurozone Economic Fears after Days of Resilience
Despite climbing for most of the week on Brexit concerns, the Euro to Pound Sterling (EUR/GBP) exchange rate slipped back from its best levels on Friday as Euro (EUR) investors became more concerned about Germany’s economic outlook.
Still, EUR/GBP is on track to sustain major gains this week. EUR/GBP opened the week at the level of 0.8636 and spent most of the week climbing.
On Thursday, EUR/GBP touched a weekly high of 0.8764 but trended closer to the level of 0.8745 at the time of writing. The pair is on track to gain around a pence this week.
Even though the pair put in solid gains this week, EUR/GBP remains well below the previous week’s highs of 0.8859. The Pound (GBP) saw its best monthly rise in a year in January, on the back of speculation that a No-deal Brexit can be avoided.
Eurozone data has continued to disappoint investors in recent weeks, limiting the Euro’s ability to hold against Pound gains. Investors are now even more concerned about the Eurozone economic outlook.
Euro (EUR) Exchange Rates Slide as German Economic Fears Worsen
For most of the week, the Euro benefitted from weakness in rivals like the Pound and US Dollar (USD). However, on Thursday the latest Eurozone ecostats and warnings from analysts weighed on the shared currency and left it weaker today.
Thursday saw the publication of the Eurozone’s Q4 Gross Domestic Product (GDP) growth rate projections and unemployment rate figures from December, which all met forecasts. Eurozone growth is forecast to slow from 1.6% to just 1.2% in Q4 as expected.
Germany’s latest ecostats on Thursday printed even worse than expected though. German retail sales contracted at a shocking -4.3% month-on-month in December, with the yearly figure slumping from 1.9% to -2.1%.
The nation’s January unemployment change figure was underwhelming too, showing that unemployment only fell by -2k rather than the expected -11k.
It followed some disappointing German inflation rate figures on Wednesday, and a Thursday evening speech from Bundesbank President Jens Weidmann left investors even more anxious about Germany’s economic outlook.
Weidmann said that Germany’s economic slump would likely last longer than initially thought, leaving the Euro with some late-week weakness.
This was on top of Thursday’s news that Italy had entered recession for the third time in a decade.
Pound (GBP) Exchange Rates Sustain Best Month in a Year despite No-deal Brexit Fears
While this was the worst week for the Pound since early-January, the British currency’s surge in the middle of the month was impressive enough that it made January the best month for Sterling in a year.
Over the past week, investors have sold the Pound on renewed fears that the Brexit process will run out of time and lead to a No-deal Brexit, as the UK government fails to make any progress in bolstering the popularity of its negotiated deal.
However, ultimately the Pound has sustained most of this month’s solid gains as investors remain hopeful that the formal Brexit date will still be delayed and that alternative solutions to the process are still on the table.
According to Petr Krpata, FX Strategist from ING:
‘… even if May returns from Brussels empty-handed, the prospect of a fresh set of amendments being debated in London Feb 13/14th can keep GBP supported,’
Euro to Pound to (EUR/GBP) Exchange Rate Investors Await Eurozone Data, Brexit Developments
Investors don’t expect UK Prime Minister Theresa May will find much success in her attempts to renegotiate the Irish backstop part of her UK-EU Brexit withdrawal deal.
As a result, if the EU does happen to change its tone at all, this could bolster hopes that May’s soft Brexit plan could pass through UK Parliament and this would make the Pound more appealing as well.
Any signs that the formal Brexit date will be delayed from its current date of March 29th could also boost Sterling.
However, amid a lack of notable Brexit developments in the coming sessions, the Pound may lack the drive needed to rise much in the first half of February – at least not until Brexit returns to Parliament debate in the middle of the month.
If there are no Brexit developments, EUR/GBP is more likely to be driven by upcoming Eurozone ecostats.
Next Tuesday will see the publication of the Eurozone’s final January composite PMI results, and December retail sales figures.
German industrial production and trade stats due later in the week could also influence Germany’s economic outlook and the Euro to Pound (EUR/GBP) exchange rate’s strength.