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Pound to Euro (GBP/EUR) Exchange Rate Edges Higher as Germany’s GDP Suffers Biggest Fall Since 1970

Euro Currency Forecast

GBP/EUR Exchange Rate Rises as German Growth Undershoots Forecasts in the Second Quarter

The Pound to Euro (GBP/EUR) exchange rate edge higher this morning, with the pairing currently trading around €1.105.

The Euro (EUR) struggled to gain on Sterling today after Germany’s flash GDP figures for the second quarter undershot forecasts, sinking from -2.2% to -10.1%. As a result, EUR investors have become concerned for the Eurozone’s powerhouse economy’s performance in the months ahead.

The German statistics office commented on today’s data, saying:

‘This was the largest decline since the beginning of quarterly GDP calculations for Germany in 1970. It was much larger than during the financial market and economic crisis (-4.7% in first quarter of 2009).

‘…a massive slump was recorded for exports and imports of goods and services as well as for household final consumption expenditure and capital formation in machinery and equipment. General government, however, raised its final consumption expenditure during the crisis.’

Meanwhile, Germany’s Unemployment Rate stayed at 6.4% this month, with the number of people out of work falling by 18,000 to 2.923 million, according to the Federal Labour Office. Economists had expected that unemployment would have worsened by 6.5%.

The Euro (EUR) has, however, suffered from a dimming economic outlook for the Eurozone. We could also see the EUR suffer more later this afternoon if Germany’s flash inflation data for June undershoots consensus.

Pound (GBP) Rises Despite Growing Concerns Over Post-Brexit Trade Talks

The Pound (GBP) edged higher against the Euro (EUR) today despite a no UK economic data releases and jitters around UK-EU post-Brexit relations.

Phil Hogan, the European Commissioner for Trade, commented on the state of UK-EU relations, saying:

‘We had been waiting for the last three months for the UK to come to the table in terms of meaningful negotiations. And I actually say it’s only in the last week or two that we have noticed that people are starting to engage on the UK side.’

As a result, GBP investors are becoming increasingly concerned that the UK could be heading for a hard-Brexit on World Trade Organisation (WTO) terms later this year.

This has been compounded by fears stoked by the London School of Economics (LSE), which said the UK could face a double-shock to the economy from both Brexit and the coronavirus pandemic.

GBP have some reason or optimism, however, after the UK edges closer to securing a post-Brexit ‘continuity’ trade deal with Japan, the world’s third-largest economy.

GBP/EUR Forecast: Could Weak Eurozone Growth Data Further Sink the Euro?

Euro (EUR) investors will be looking ahead to tomorrow’s release of June’s German Retail Sales figure for June. If this eases from 3.8% to 3%, then we could see the single currency continue to suffer.

Tomorrow will also see the flash Eurozone GDP figure for the second quarter. However, with a dire forecast of a -12% fall, we could likely see the GBP/EUR exchange rate rise.

The GBP/EUR exchange rate will continue to be influenced by Brexit announcements this week. Any further reports that show a lack of progress in UK-EU trade talks would prove GBP-negative.