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Euro Pound Exchange Rate Forecast: EUR/GBP Subdued as Germany Factory Data Drives Recession Fears

Euro Currency Forecast

EUR/GBP Exchange Rate Muted as German Industrial Data Misses

The Euro Pound (EUR/GBP) exchange rate is on the defensive this morning as some disappointing factory figures from Germany reignites speculation the country may be headed for a recession.

At the time of writing EUR/GBP exchange rate remains range bound this morning, having given up Monday’s gains overnight.

Euro Pound (EUR/GBP) Exchange Rate Subdued on German Recession Speculation

The Euro Pound (EUR/GBP) exchange rate is struggling this morning as markets react to some lacklustre factory data from Germany.

According to data published by Germany’s Federal Statistics Office, domestic industrial production contracted for a third consecutive month in November with a sizable 1.9% drop, falling well short of expectations of a modest 0.2% growth.

This follows reports that German factory orders also slumped over the same period, and has fueled speculation that Germany could be headed into a technical recession in the fourth quarter after a shock contraction of growth in Q3.

However some analysts suggest that a technical recession shouldn’t be too worrying to investors, thanks in part to strong labour figures and an upbeat outlook for 2019.

Carsten Brzeski, Chief Economist at ING Germany, explains:

‘Looking ahead, however, even a technical recession should be nothing to be too worried about. In fact, there are still plenty of reasons to remain optimistic, even for German industry.

‘Order books are still richly filled and companies still report assured production close to record highs

‘In addition to this, the recent pick-up in orders in the automotive industry and favourable financing conditions in the entire economy also bode well for at least solid industrial and investment activity in 2019.’

EUR/GBP Exchange Rate Forecast: Brexit Uncertainty to Prompt Volatility in Sterling?

Looking ahead, the Euro Pound (EUR/GBP) exchange rate may be met by volatility this week as UK MPs gear up for a parliamentary vote on Theresa May’s Brexit deal scheduled for 15 January.

MPs will debate the withdrawal bill through the second half of the week, likely prompting jitters in Sterling if it appears that opposition to the deal remains strong and that it may still be rejected.

Meanwhile EUR investors are likely to pay close attention to Wednesday’s trade balance from Germany, with another disappointment likely to further bolster speculation that Europe’s largest economy may have entered a recession at the end of 2018.