German Industrial Production Activity Weakens – Pound Euro (GBP/EUR) Exchange Rates Capitalise
The Pound Euro (GBP/EUR) exchange rated traded slightly higher on Friday as investors fled the single currency in light of yet another disappointing private sector activity print.
According to the Federal Statistics Office, industrial production activity in Germany slipped by -1.0% month-on-month in April, down from the previous period’s print of 1.0% and the forecast of 0.3%.
On an annual basis, production slowed to 2.0%, down from the previous print of 3.2% and the forecast of 2.8%.
To make matters worse, French factory data was also rather dreary, and a separate publication on Thursday also revealed that German manufacturing orders fell for their fourth month straight in April.
These disappointing results cemented fears that the bloc’s slowdown in Q1 was not a blip, but rather evidence of the beginning of an ongoing trend.
BoE Consumer Inflation Expectations Survey Holds Steady – Pound (GBP) Exchange Rates Climb
Sterling posted a remarkably strong performance on Friday morning – especially given Thursday’s Brexit backstop rigmarole and ongoing concerns regarding the negotiation process.
This strength seemed to be due to investors favouring the Pound over the Euro in light of the looming Group of 7 (G7) summit in Canada, with investors perhaps concerned that the Euro might take the brunt of any worsening relations between the US and the EU.
There was, however, some good news on the data front, with the Bank of England’s (BoE) consumer inflation expectations survey pointing to ongoing high levels of inflation for the UK.
According to the survey, 51% of the public predicts UK interest rates to rise over the next 12 months, and consumer price inflation is forecast to print at 2.9% in two years’ time and 3.6% in five years – revised up from 3.4% prior.
Beyond this, analysts remain quite hopeful that the BoE will raise interest rates in August, effectively positioning the BoE as the more hawkish option compared to the European Central Bank (ECB).
G7 Summit in the Spotlight – What can Investors Expect for the Pound Euro (GBP/EUR) Exchange Rate?
The main event on investors’ minds is the looming G7 summit – due to take place over the weekend – with US President Donald Trump heading into potentially tense talks after accusing allies Canada and France of putting heavy economic burdens on the US.
Investors expect international trade relations to dominate, with 6 of the 7 members states expected to express disappointment with the US tariffs on steel and aluminium.
Ultimately, exactly what will occur is uncertain, but any sign of escalating tensions between the US and the EU could siphon demand away from EUR, perhaps even extending Sterling’s lead.