Pound Euro (GBP/EUR) Exchange Rate Rises as German Economic Sentiment Slumps to Seven-Month Low
The Pound Sterling Euro (GBP/EUR) exchange rate edged up and the pairing is currently trading at an inter-bank rate of €1.1204.
On Tuesday morning, data revealed that economic sentiment in Germany slumped further than expected.
The German ZEW Economic Sentiment survey plummeted to a lower-than-forecast -21.1 in June from -2.1 in May.
This is the lowest the survey has fallen since November 2018.
Commenting on the data, ZEW President Professor Achim Wambach said:
‘The sharp drop in the ZEW Indicator of Economic Sentiment coincides with an increased uncertainty regarding the future development of the global economy and substantially worsened figures for the German economy at the beginning of the second quarter. The intensification of the conflict between the USA and China, the increased risk of a military conflict in the Middle East and the higher probability of a no-deal Brexit are all casting a shade on the global economic outlook. On top of this, German industry has been reporting worse than expected figures for production, exports and retail sales for April.’
Euro (EUR) Falls on a Dovish Draghi
Meanwhile, the pairing rose thanks to dovish comments from European Central Bank (ECB) President Mario Draghi.
Speaking at the ECB Forum in Sintra, Draghi said that the bank could cut interest rates again if inflation did not reach its target.
This likely dampened sentiment in the single currency as Draghi laid the groundwork for further stimulus and suggested further interest rate cuts could be used.
Draghi suggested that the door was still open to further rate cuts, stating:
‘Further cuts in policy interest rates and mitigating measures to contain any side effects remain part of our tools. And the APP [Asset Purchase Program] still has considerable headroom.
‘If the crisis has shown anything, it is that we will use all the flexibility within our mandate to fulfil our mandate – and we will do so again to answer any challenges to price stability in the future.’
Sterling (GBP) Rises Ahead of Second Tory Party Leadership Contest Vote
Investors continued to fret about the risks of the UK crashing out of the European Union on 31 October.
However, due to disappointing economic data releases from the Eurozone, the Pound was able to edge up against the Euro.
Meanwhile, there were further signs that front-runner, Boris Johnson edged closer to becoming the next Conservative Party Leader and Prime Minister weighed on Sterling.
Later today MPs are expected to participate in a second round of voting which is likely to place Johnson in the lead once again.
If voting reveals that Boris Johnson extended his lead, it could dampen sentiment in Sterling.
Commenting on this, Senior Market Analyst at JFD Group, Charalambos Pissouros said:
‘Fears of a disorderly exit could keep the path of least resistance to the downside.’
Pound Euro Outlook: Will Disappointing German PPI Weigh on EUR?
Looking ahead to Wednesday, the Euro (EUR) could fall against the Pound (GBP) following the release of the German Producer Price Index (PPI).
If PPI does not rise as high as forecast, it could dampen sentiment in the single currency.
Meanwhile, the Pound could edge up later in the morning following the release of the UK Consumer Price Index (CPI).
If May’s CPI rises higher than forecast, the Pound Euro (GBP/EUR) exchange rate could rise.