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Pound Euro (GBP/EUR) Exchange Rate Edges Higher as German Growth Figures Contract in Second Quarter

European Central Bank

GBP/EUR Exchange Rate Improves as German Recession Fears Increase

The Pound Euro (GBP/EUR) exchange edged higher today, with the pairing fluctuating around €1.080 following this morning’s publication of the flash German growth figures for the second quarter, which fell below forecast and contracted at -0.1%.

Katharina Utermöhl, an Economist at Allianz, commented:

‘The weak foreign trade performance and declining construction investment proved sufficient to bring the German economy to its knees, despite continued positive consumption impulses.

‘In view of the subdued outlook for world trade and the automotive industry and lingering elevated political uncertainty around trade, Italy and Brexit, at best mini-growth rates can be expected in the coming quarters.’

Euro traders are feeling increasingly jittery as today’s figures have fuelled fears of a recession for the German economy in the near-term.

Some single currency traders have however been relieved after Eurosceptic Italian Deputy Prime Minister Matteo Salvini’s call for new elections have suffered a setback.

This follows the Italian Senate’s prioritising of Italian Prime Minister Giuseppe Conte’s addressing of the crisis in the Italian Parliament next week, thus rejecting immediate no-confidence vote debates.

GBP/EUR Exchange Rate Climbs as UK Inflation Data in July Exceeds BoE Targets

The Pound benefited from this morning’s release of the UK inflation figure for July, which beat the Bank of England’s (BoE) target of 2.0% by rising to 2.1% – despite a consensus of 1.9%.

James Smith, a Developed Markets Economist at ING, said:

‘[W]hile [UK inflation] has the potential to ease in coming months, we suspect the Bank of England will continue to focus on the strong wage growth backdrop. Unlike in other global economies, a UK rate cut seems unlikely in the near-term.’

Brexit has remained in focus today following comments from former Chancellor of the Exchequer Philip Hammond, who said that it would be a betrayal of the referendum if Prime Minister Boris Johnson delivers a no-deal on October 31.

Mr Hammond said:

‘To set the bar for negotiations so high that we inevitably leave without a deal would be a betrayal. The prime minister said he would get a deal and we want to see him deliver that deal.’

GBP/EUR Outlook: UK Retail Sales in Focus

European markets will be closed tomorrow for Assumption Day, a bank holiday.

Pound investors will be looking ahead to tomorrow’s release of the UK retail sales figures for July, which are expected to ease from 1% to -0.2%.

Year-on-year sales are also expected to fall from 3.8% to 2.6%.

The Pound Euro exchange rate is likely to remain volatile for the rest of the week however, as UK-EU Brexit negotiations continue to face a stalemate over the controversial Irish backstop issue.