Deepest Post-Reunification German Factory Orders Slump Fails to Boost Pound Euro (GBP/EUR) Exchange Rate
The deepest slump in German factory orders since reunification was not enough to prevent the Pound Sterling to Euro (GBP/EUR) exchange rate from trending lower on Wednesday.
As orders plunged -15.6% on the month in March this highlighted the extent of the pandemic’s impact on the Eurozone’s powerhouse economy.
Even so, in spite of Germany still appearing on track for a sharp recession in the first half of 2020 the Euro (EUR) still saw limited downside potential.
With markets hopeful that the global economy is already on course to begin opening back up as the initial Covid-19 crisis fades investors found limited incentive to sell out of the single currency.
Support for Pound Sterling (GBP), meanwhile, weakened dramatically after April’s UK construction PMI defied forecasts to plunge from 39.3 to a mere 8.2.
This signals a major contraction for the construction sector, by far its worst performance on record, adding to the odds of a significant downturn in the UK economy.
Signs of BoE Optimism May Offer Pound Sterling Rallying Point
However, the mood towards the Pound could improve on Thursday if the Bank of England’s (BoE) May policy announcement proves encouraging.
Although no change in monetary policy looks likely at this juncture the nature of the latest commentary from policymakers may offer GBP exchange rates some encouragement.
If the BoE expresses any degree of optimism over the economic outlook, however limited, this could give the GBP/EUR exchange rate a boost.
Any indication that the UK economy could begin to bounce back from its current downturn sooner rather than later could encourage investors to favour the Pound over its rivals once again.
Nevertheless, GBP exchange rates still look vulnerable to a further decline if the central bank adopts a more dovish outlook.
Until markets see evidence of the UK government preparing to ease some of its lockdown conditions the potential for Pound gains could prove limited.
Sharp Decline in German and French Industrial Production Set to Drag on Euro
Worries over the health of the Eurozone economy look set to pick up further, on the other hand, with the release of March’s German and French industrial production figures.
Forecasts point towards a sharp decline in production from both of the Eurozone’s largest economies, offering further evidence of the drag that Covid-19 has already placed on growth.
Sufficiently weak readings here may encourage bets that the first quarter Eurozone gross domestic product could prove worse than initially estimated, leaving the Euro vulnerable to selling pressure.
If the deterioration in industrial production proves worse than anticipated this could see the GBP/EUR exchange rate rally strongly.
As long as the Eurozone appears increasingly on course for a major manufacturing slowdown in the first half of the year support for the Euro is likely to weaken.
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