Near-Contraction in German Construction Sector Triggers EUR/GBP Exchange Rate Losses
The Euro (EUR) has fallen back against the Pound (GBP) today, dropping near to a weekly interbank exchange rate low of €0.8861.
This deterioration follows the news that German construction sector activity slowed in September, instead of rising as expected.
The monthly reading fell from 51.5 points to 50.2, when a rise to 52.9 points had been anticipated.
Any reading below 50 points indicates sector contraction, so this has been a worrying development for Euro traders.
Summing up the negative news, IHS Markit Principal Economist Phil Smith said:
‘Overall construction activity was up only slightly in September and across the third quarter as a whole, indicating a loss of growth momentum compared with the second quarter when activity levels were still partly in a recovery phase following an usually cold March.’
Mr Smith wasn’t entirely pessimistic in his outlook, however, later adding that:
‘Growth may have downshifted, but constructors don’t foresee activity levels going into reverse any time soon.
‘Expansion in the wider economy continues to boost construction order books, and firms expect high demand to support output levels in the year ahead.’
Pound Sterling to Euro (GBP/EUR) Exchange Rate Rises on Ireland’s Brexit ‘Backing’
The Pound (GBP) has advanced against the Euro (EUR) today because of the latest Brexit news; the latest update has raised hopes for an eventual UK-EU agreement.
Following the Conservative Party Conference, it has been reported that the Irish government is planning to back a UK-wide customs union agreement.
This would be the ideal solution to the longstanding Irish border issue – previous EU plans have focused on a customs deal for Northern Ireland but not the rest of the UK.
This is by no means a guarantee that Brexit talks will move ahead on the issue of the Irish border, but has still been enough to boost Pound Sterling demand.
UK and EU officials are currently under pressure to conclude talks in November; negotiations have been stalled for months.
Euro to Pound Sterling Exchange Rate Forecast: Will EUR/GBP Rise on Higher German Factory Orders?
This week’s last major piece of economic data will come from the Eurozone, in the form of Friday’s German factory orders figure for August.
Most economists expect that this reading will rise from -0.9% to 0.5%, although some are more optimistically forecasting 3.2% growth.
Germany has a highly developed manufacturing industry and news of increased orders might boost the Euro because of hopes for increased GDP growth.
A forecast-matching rise could be doubly supportive because orders have fallen for six months in 2018; a positive reading could trigger a EUR/GBP exchange rate rally.
Germany will remain in the spotlight next week, with German industrial output and trade balance data out on Monday and Tuesday respectively.
Current estimates are for a recovery in industrial production with a rise from -1.1% to 1.5% in August, alongside trade surplus growth during the month.
A forecast-matching trade balance rise would see an increase from €16.5bn to €19.1bn, which might be enough to cause early EUR/GBP exchange rate gains next week.