EUR/GBP Exchange Rate Edges Higher Despite Germany Entering a Technical Recession
The Euro to Pound (EUR/GBP) exchange rate rose by 0.5% today, with the pairing currently trading around £0.88.
Today saw the release of the Eurozone’s GDP figure for the first quarter, which fell to its worst on record at -3.8%. In fact, this was the worst performance since the Euro was created back in the late 1990s.
Meanwhile, analysts are speculating that the Eurozone’s growth figure for the second-quarter could be far worse due to the full impact of the coronavirus pandemic.
Claus Vistesen, the Chief Eurozone Economist at Pantheon Macroeconomics, commented:
‘The German economy has been tip-toeing on the edge of recession since the beginning of 2019, but it can hide no longer. The revision to Q4 means that the economy entered a technical recession at the start of the year, and this before the incoming collapse in Q2 activity.’
Furthermore, Germany’s economy fell into a technical recession as Germany’s federal statistics office revised down its reading for the fourth quarter of 2019 to -0.1%.
German economy contracts 2.2% QoQ in 1Q, biggest slump since Q1 2009, but German fared a lot better than Italy (Q1: -4.7%), Spain (Q1: -5.2%) or France (-5.8%). German 4Q GDP Revised to -0.1% from 0.0% on quarter so #Germany already in recession. pic.twitter.com/lM7RVs9r0N
— Holger Zschaepitz (@Schuldensuehner) May 15, 2020
France’s economy was the hardest-hit in Q1, with the economy shrinking by -5.8%, while Italy’s economy contracted by -4.7%. However, despite dire Eurozone economic data, the Euro has performed strongly against the weaker Sterling today.
Pound (GBP) Sinks as UK-EU Brexit Talks End with ‘Very Little Progress’
The Pound (GBP) has suffered from rising fears over UK-EU relations today as the two powers concluded their Brexit talks. David Frost, the UK’s Chief Negotiator, said talks with the EU had ended with ‘very little progress’.
Mr Frost also added:
‘[W]e very much need a change in approach for the next round of talks beginning on 1 June.’
Meanwhile, the EU’s Chief Negotiator, Michel Barnier, left Sterling traders feeling anxious, commenting:
‘We will not bargain away our values for the benefit of the British economy.’
As a result, Sterling traders are feeling increasingly anxious that the UK could leave the EU later this year without a deal.
The Pound (GBP) is also suffering from the UK’s economic uncertainty going forward. However, any signs that the UK’s R-rate (rate of infection) is falling could boost the GBP/EUR exchange rate.
EUR/GBP Forecast: Could Easing Coronavirus Cases Boost the Euro Next Week?
Looking ahead to next week, Pound (GBP) investors will be awaiting Tuesday’s release of March’s UK ILO Unemployment Rate report. However, if Britain’s unemployment rate continues to increase, then we could see Sterling sink further.
Euro (EUR) traders will be awaiting Tuesday’s release of Germany’s ZEW Survey of Economic Sentiment for May. If this confirms consensus and plummets to -42.3, then we could see the single currency shed some of its gains.
The EUR/GBP exchange rate will continue to be driven by the Eurozone’s coronavirus developments next weeks. If the number of coronavirus cases continue to decrease following the easing of lockdowns, then we could see the Euro surge.