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Euro to Pound (EUR/GBP) Exchange Rate Dips as IFO Expects German Economy to Contract by -6.6% in 2020

EUR/GBP Exchange Rate Falls on Gloomy German Economic Forecasts

The Euro to Pound (EUR/GBP) exchange rate dipped by -0.1% this morning, with the pairing currently trading around £0.879.

Today saw the Ifo announce that it expects the German economy to contract by -6.6% in 2020 year-on-year due to the coronavirus pandemic.

Timo Wollmershaeuser, the head of economic forecasting at Ifo, commented:

‘We won’t be back to the pre-Corona situation until the end of 2021.’

Markets are in ‘risk-on’ recovery mode because countries heavily hit by the coronavirus are now planning to open up their economies.

Spain and France are also expected to provide further details in the coming days, while Austria’s lockdown is expected to be lifted as early as the end of this month.

As a result, the Euro’s safe-haven status has suffered as investors flock to riskier assets.

However, Italian President Giuseppe Conte stressed the point that social distancing measures would continue for months to come, adding:

‘If we do not respect the precautions the curve will go up, the deaths will increase, and we will have irreversible damage to our economy. If you love Italy, keep your distance.’

As a result, Euro (EUR) investors are cautious over fears of a possible ‘second wave’ of coronavirus cases, which would devastate the Eurozone’s economy.

Pound (GBP) Rises on Hopes of Easing UK Lockdown Measures

The Pound (GBP) rose against the Euro (EUR) today on news that British Business Secretary Alok Sharma is working closely with senior union officials and employers to discuss plans of getting people back to work safely.

Yesterday also saw Prime Minister Boris Johnson announced that the nation was now in the position to overcome the coronavirus. Mr Johnson added that the Government was now prepared to ‘fire up the engines of this vast UK economy’ as soon as it was safe to do so.

As a result, Sterling traders are becoming increasingly optimistic over the UK easing its lockdown measures in the coming weeks.

Meanwhile, today will see the release of the UK CBI Distributive Trades Survey for April.

If this confirms consensus and plummets by -40%, then we could see Sterling shed some of its gains.

EUR/GBP Forecast: Could the Euro Sink on Poor German Inflation Data?

Euro (EUR) investors will be looking ahead to tomorrow’s release of the flash German Harmonized Index of Consumer Prices report for April.

Any signs of the Eurozone’s powerhouse economy inflation gauge tumbling, however, would prove Euro-negative.

The EUR/GBP exchange rate will be driven by news over the UK’s lockdown. Any indications that the Government could ease measures in the near-term would further boost the Pound.