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Euro to Pound Sterling Exchange Rate Recovery Cut Short on German Recession Fears

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Euro to Pound Exchange Rate Movement Narrow amid Britain’s Uncertain Outlooks

A recovery attempt in the Euro to Pound Sterling (EUR/GBP) exchange rate was cut short this morning, as the latest German data contradicted optimistic Eurozone data published earlier in the week, raising concerns for a German recession.

Following last week’s slight slip from 0.8638 to 0.8632, EUR/GBP has seen more solid losses so far this week.

EUR/GBP touched on a fortnight low of 0.8586 on Tuesday. While EUR/GBP has seen a steady recovery since then, the pair stopped advancing this morning amid Euro (EUR) weakness. EUR/GBP is trending close to the level of 0.8612 at the time of writing.

Investors are now awaiting the Bank of England (BoE) policy decision later today, but the Pound’s (GBP) movements are likely to remain limited amid market focus on election and Brexit uncertainties.

Euro (EUR) Exchange Rate Advance Dampened by German recession fears

The Euro has lacked support in recent weeks, as Eurozone data continues to indicate that the bloc’s largest economy is suffering from a prolonged slowdown.

Fears for a lasting German recession has been damaging the Eurozone overall, with data for the bloc showing slight signs of recovery while major German figures continue to fall short.

While most of this week’s Eurozone data has actually beaten forecasts, some notable German data published today came in with a surprisingly deep contraction.

Germany’s September industrial production results worsened to -0.6% rather than printing at the forecast -0.4%. The contraction worsened fears of a lasting recession in Germany, and will weigh on the market’s outlook for the Eurozone and Euro.

The European Commission also announced it was cutting Eurozone growth forecasts, though the bloc is still expected to avoid an overall recession.

Pound (GBP) Exchange Rates Lack Drive Ahead of Bank of England (BoE) Rate Decision

EUR/GBP has been driven mostly by Euro strength in recent sessions, as the Pound outlook remains uncertain with over a month until Britain’s highly anticipated 12th December general election.

This morning, investors are steadying on the Pound ahead of the Bank of England’s (BoE) November policy decision later.

The Bank of England is expected to leave policy frozen and maintain a cautious outlook on political and Brexit uncertainties, but this is leaving the Pound’s movement limp.

Analysts note that there is little the BoE can decide at this point, amid the broader uncertainties facing Britain. According to Kallum Pickering, Senior Economist at Berenberg:

‘One of the problems the BoE has is that you have binary events coming up – the election and Brexit,

So from a pure policy point of view, the BoE doesn’t pre-empt these events.’

Euro to Pound (EUR/GBP) Exchange Rates Continue to Focus on German Recession Outlook

Pound investors are awaiting today’s Bank of England (BoE) policy decision, but the decision is unlikely to cause much Euro to Pound exchange rate movement unless it takes an unexpected shift in stance.

Instead, Pound investors will remain focused on developments in Britain’s general election, such as polling and developments within political parties. As a result, upcoming Eurozone news is more likely to cause EUR/GBP movement.

Tomorrow will round off the week’s economic calendar with German trade balance data from September, as well as France’s September industrial production and trade balance stats.

Germany’s trade data will give investors a better idea of how German trade is performing amid a year of trade protectionism in the US. If the data falls short of expectations, then German recession fears could put fresh pressure on the Euro.

Looking ahead to next week, the Euro to Pound Sterling (EUR/GBP) exchange rate will be driven by inflation and growth data from Germany and the Eurozone overall.