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Pound Euro (GBP/EUR) Exchange Rate Trends Lower Thanks to German Unemployment Rate Improvement


Negative Eurozone Inflation Fails to Shore up Pound Euro (GBP/EUR) Exchange Rate

The Pound to Euro (GBP/EUR) exchange rate weakened even as the headline Eurozone inflation rate remained in negative territory.

Although Eurozone inflation remained at -0.3% on the year, disappointing forecasts of a slight improvement, this was not enough to drag the Euro (EUR) lower on Tuesday.

While the case for greater European Central Bank (ECB) monetary loosening appeared to increase this put little pressure on the single currency, given that a December move is already largely priced in.

On the other hand, the German unemployment rate delivered a surprise improvement in November to ease from 6.2% to 6.1%.

This suggests that the Eurozone’s powerhouse economy saw some degree of recovery last month, fuelling hopes of a better-than-expected fourth quarter performance.

Doubts over UK-EU Trade Deal Odds Limit GBP/EUR Exchange Rate Support

With only a month now left for the UK and EU to reach an agreement over trade the mood towards Pound Sterling (GBP) naturally diminished, meanwhile.

The growing possibility of a no-deal scenario weighed heavily on demand for the Pound, keeping GBP exchange rates biased to the downside once again.

Developments on the UK high street also put pressure on the Pound, with Debenhams and the Arcardia Group collapsing into administration.

The loss of further high street staples, and the likely impending wave of job losses, further dented confidence in the outlook of the UK economy at large.

With the finalised UK services PMI looking set to confirm a sharp contraction on the month the Pound could lose further support on Thursday.

As long as evidence continues to point towards the UK experiencing a double-dip recession before the end of the year the GBP/EUR exchange rate may struggle to regain its lost footing.

Euro Looks for Further Boost on German Retail Sales Rebound

German retail sales figures may offer an additional boost to the Euro, on the other hand, with forecasts pointing towards a solid monthly rebound.

As long as sales show solid growth in October this may help to ease any lingering anxiety over the impact of recent Covid-19 restrictions.

If the Eurozone’s powerhouse economy can demonstrate greater resilience at the start of the fourth quarter this may appear to limit the odds of a deeper quarterly growth contraction.

Another positive surprise from the Eurozone unemployment rate could also drive the GBP/EUR exchange rate lower.

Evidence that the currency union’s labour market experienced a recovery, however minor, in October could encourage investors to favour the Euro over its rivals.

However, if the unemployment rate rises to 8.4% as forecast this could see the single currency fall out of favour once again.