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Euro Pound (EUR/GBP) Exchange Rate Sinks, German Inflation Falls below Expectations in September

European Central Bank

EUR/GBP Exchange Rate Falls as Eurozone’s Economic Woes Continue

The Euro Pound (EUR/GBP) exchange rate fell by -0.5% today, with the pairing currently trading around £0.885 as September’s flash German inflation figure fell below forecast from 1% to 0.9%, further heightening recession fears for the Eurozone’s powerhouse economy.

As a result, the Euro fell against the Pound as this has provided further evidence for European Central Bank (ECB) policymakers to step up monetary stimulus to bolster the struggling economy.

Carsten Brzeski, Chief Economist at ING, was less downbeat, however:

‘At least for the time being, the feared growing contagion from the manufacturing meltdown to the rest of the German economy is not (yet) materialising.’

Today also saw August’s German retail sales figures which rose by 0.5%, just undercutting their forecast increase of 0.6%. Germany’s unemployment change figure also fell unexpectedly to -10 thousand in September.

However, as Europe’s strongest economy still shows no signs of recovery for the third-quarter, today’s economic data failed to boost confidence in the European economy.

GBP/EUR Exchange Rate Rises as UK Annual Growth Figure is Revised Higher in Second Quarter

The Pound (GBP) edged higher against the European currency today following the revision of the annual UK growth figure for the second quarter, which rose from 1.2% to 1.3%.

John Hawksworth, Chief Economist at PwC, was downbeat, however:

‘[Today’s figures showed] no change to the big picture of a slowing economy being propped up by consumer spending as investment has fallen back.’

Meanwhile, Prime Minister Boris Johnson has bolstered UK market’s hopes for a deal emerging between the UK and the EU ahead of the 31 October Brexit deadline.

Mr Johnson said in his interview with Andrew Marr for the BBC:

‘I do think there’s a good chance [of getting a deal] and we’re working incredibly hard. I’ve been having conversations … we will continue to work tomorrow and in the course of the next few days … to see if we can get this thing over the line. And there’s a good chance.’

EUR/GBP Outlook: Sterling Could Sink on No-Deal Brexit Jitters

Euro traders will be looking ahead to tomorrow’s release of September’s flash Eurozone inflation figure, which is expected to ease from 0.9% to 1%.

Meanwhile, the Pound could edge higher if tomorrow’s UK Markit manufacturing PMI for September shows any signs of improvement.

Tomorrow will also see the publication of September’s German Markit manufacturing PMI, which is expected to remain in contraction territory at 41.4. As a result, we are not likely to see the European currency make any major gains tomorrow.

The EUR/GBP exchange rate could, however, show some signs of recovery if the Conservative Government fails to come forward with a UK-EU Brexit deal during the course of this week, as this would further exacerbate fears over a no-deal in October.