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Euro to Pound Exchange Rate Nears 2-Year-Best despite German Recession Fears

Euro to Pound Exchange Rate Climbing on Brexit and Political Jitters

Despite this morning’s German data leading to fresh concerns about the German and overall Eurozone economy, the Euro to Pound Sterling (EUR/GBP) exchange rate has been climbing today and wasn’t trending too far below its best levels all year.

Since opening this week at the level of 0.9135, EUR/GBP has only seen further gains despite concerns about the Eurozone economy.

EUR/GBP has sustained over half a cent in gains, and at the time of writing on Wednesday afternoon was trending closely to the level of 0.9240.

This was just below this week’s best level of 0.9248, which was also the best EUR/GBP level since August 2017 – almost two years ago.

The Euro (EUR) has been gaining due to a combination of safe haven demand and political jitters weighing on Sterling (GBP), but the shared currency’s potential for further gains is limited.

Euro (EUR) Exchange Rates Advance but German Recession Fears Limit Gains

The Euro has been fairly appealing in recent sessions, despite worsening concerns about the economic outlooks for Germany and the Eurozone overall.

This morning, Germany’s June industrial production report was published and came in with a surprisingly deep contraction of -1.5% rather than the expected -0.4%.

According to economists from ING:

‘We would characterize today’s industrial production report as devastating, with no silver lining,

We should prepare for contraction in the German economy.’

As Germany is the Eurozone’s biggest economy, rising speculation that Germany could be headed towards a recession has dampened the Eurozone outlook as well, and dampened the Euro’s appeal.

Despite this though, the Euro is benefitting from weakness in rivals like the Pound and US Dollar (USD).

As the US Dollar (USD) is seeing mixed performance in reaction to flared up US-China trade tensions despite being a safe haven currency, the Euro has been benefitting a little from safe haven demand as well due to its negative correlation with the US Dollar.

Pound (GBP) Exchange Rates Weighed by Brexit and Political Jitters

The Pound’s sharp losses on rising no-deal Brexit fears have been among the biggest movements in the forex market in the last few weeks.

While the British currency’s movement has steadied a little in recent sessions, investors are still hesitant to buy it due to pervasive fears that the Brexit process could end in a worst-case scenario no-deal outcome.

This has made it easier for the Euro to Pound exchange rate to remain relatively close to its best levels despite the Euro’s own mixed movement.

Brexit fears persist, and other political uncertainties weighed on the Pound today too. Speculation is rising that UK Parliament could attempt a no-confidence vote in the Boris Johnson government once it returns from summer recess.

While this would be done to prevent a no-deal Brexit, there are concerns that it could lead to a general election which would also be Pound-negative.

Euro to Pound (EUR/GBP) Exchange Rate Could Tumble if Eurozone Data Continues to Disappoint

Despite today’s German industrial production data disappointing investors, the Euro to Pound (EUR/GBP) exchange rate trended near its best levels all year.

Still, while the Euro has been resilient, pressure and downside risks on the shared currency are rising due to the worsening German economic outlook.

If German and Eurozone data continues to fall short of expectations, downside pressure on the Euro will only build and the Euro will be less likely to be able to hold its ground.

While tomorrow’s European Central Bank (ECB) economic bulletin is unlikely to be particularly influential, EUR/GBP movement could be affected by Friday’s German trade balance report and French industrial production stats.

If they disappoint, EUR/GBP could weaken, while stronger data would help EUR/GBP to hold its recent highs.

Investors may buy the Pound back from its lows, but the currency is even more likely to advance if there are positive developments on Brexit.

Friday’s upcoming UK growth and business investment stats could also influence the Euro to Pound (EUR/GBP) exchange rate if there are no notable political developments over the next day or so.