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Pound Euro (GBP/EUR) Exchange Rate Falls as Germany Plunges into Recession

Pound Sterling Euro (GBP/EUR) Exchange Rate Slides as Germany Suffers Steepest Fall in GDP Since 2009

The Pound Sterling Euro (GBP/EUR) exchange rate slumped by around -0.3% on Friday morning. This left the pairing trading at around €1.1284.

Data revealed that the German economy contracted by -2.2% in the first three months of 2020. This was the steepest slump since the 2009 financial crisis as coronavirus forced shops and factories to close.

However, this did little to prevent the Pound falling against the single currency.

The preliminary data followed revised data showing activity in the final quarter of 2019 fell by -0.1%, meaning the bloc’s largest economy is currently in a technical recession.

Commenting on this, ING’s Eurozone and Global Head of Macro, Carsten Brzeski noted:

‘Looking ahead, things will get worse before they get better. To be more precise, incoming data will be worse, even though the worst might already be behind us. If today’s data are the result of two weeks of lockdown, three more weeks of lockdown and a very gradual lifting of some measures do not bode well for the second quarter.’

Added to this, Brzeski revealed Germany may find it more difficult to drag itself out of the slump compared to in 2008/9.

ING’s Carsten Brzeski wrote:

‘Contrary to the 2008/9 crisis, out of which Germany emerged faster and stronger, the economy entered the current crisis with more structural weakness. In 2008/9, Germany had just implemented structural reforms and was just at the start of a positive cycle. This time, it was at the end of a very mature cycle and in need of investments and new reforms. Also, back then, the Asian countries, which were hardly hit by the financial crisis, rebounded quickly and helped Germany’s export-led recovery. There won’t be any sugar daddy this time around.’

Meanwhile, flash GDP for the whole of the Eurozone slumped by -3.8%.

Sterling (GBP) Slides as British Government Refuses to Extend Brexit Deadline

The Pound fell against the single currency on Friday as the GBP continued to be weighed down by the combination of weak data due to the coronavirus and Brexit worries.

Sterling slipped as Boris Johnson’s government reiterated its refusal to extend the Brexit extension period.

Added to this, the government noted it was not keen to compromise with the EU on trade negotiations.

According to Ipek Ozkardeskaya, a senior analyst at Swissquote Bank:

‘The sterling outlook remains negative as the latest round of Brexit negotiations this week didn’t show any signs of progress in key areas.’

Meanwhile, data this morning revealed that British manufacturers are not as confident about the quick return to work.

A survey from Made UK showed manufacturers believe it will take longer to recover from the impact of the coronavirus compared to just a few weeks ago.

Around three-quarters expect business will not be back to normal within six months. Meanwhile, 36% of those surveyed believe it will take more than a year.

Commenting on the survey, Stephen Phipson, Make UK’s chief executive said:

‘It’s clear that it is going to be a long road back to anything like normal trading conditions and, despite the lockdown beginning to be lifted, there will be a significant impact on companies and jobs for some time to come.’

Pound Euro Outlook: Bundesbank and UK Unemployment in Focus

Looking ahead, the Euro (EUR) could suffer some losses against the Pound (GBP) following the release of the Bundesbank’s monthly report.

If Germany’s central bank is overly dovish after the economy has fallen into a recession, the single currency will slide.

Meanwhile, Tuesday could see Sterling give up any gains following the release of UK employment data.

If data reveals the country’s unemployment rate has jumped higher than expected due to the coronavirus crisis, the Pound Euro (GBP/EUR) exchange rate will remain flat.