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Pound to Euro (GBP/EUR) Exchange Rate Rises as Fears of ‘Rising Unemployment’ Drag on Single Currency

European Central Bank

GBP/EUR Exchange Rate Edges Higher Despite Stronger-Than-Forecast German Factory Orders in June

The Pound to Euro (GBP/EUR) exchange rate rose by 0.6% today, with the pairing currently trading around €1.11.

The Euro (EUR) struggled to gain on Sterling following today’s publication of Germany’s factory orders figures for June, which rose from 10.4% to 27.9%.

ING bank chief economist Carsten Brzeski was, however, optimistic about the data, saying:

‘Today’s numbers suggest that the industry could catch up with the momentum in the rest of the economy.’

Yesterday also saw the Eurozone’s retail sales fully recover in June, buying hopes that the bloc’s economy could be on the road to recovery.

Nonetheless, Bert Colijn, the Senior Economist for the Eurozone at ING, was more downbeat, warning:

‘Don’t get too excited about these strong numbers though, as pent-up demand fades, the picture of rising unemployment and a stalled recovery in consumer confidence will subdue sales growth in the second half of the year.’

Pound (GBP) Rises as the Bank of England Says UK Economy Recovering Faster Than Expected

The Pound (GBP) rose against the single currency today after the Bank of England (BoE) held its interest rate at 0.1% as forecast.

However, the Bank warned of high levels of UK unemployment levels in the months ahead, with predictions of around 2.5 million being made unemployed owing to a Covid-19 slump.

Sterling, however, benefited from a bullish sentiment from the BoE that the British economy was recovering faster than first predicted.

James Smith, the research director at the Resolution Foundation, was more cautious, however:

‘While today’s forecasts from the Bank of England now point to a smaller initial economic hit from the coronavirus crisis than it predicted back in May, they still make troubling reading with the UK expected to see the largest fall in GDP among rich countries.’

In other UK economic news, today saw the release of the final construction PMI for July, which beat forecasts and rose from 55.3 to 58.1. Consequently, GBP investors have become more hopeful that Britain’s economy could stage a strong recovery in the months ahead.

Duncan Brock, the Group Director at the Chartered Institute of Procurement and Supply, was, however, more cautious, saying:

‘After a summer of this blistering return to growth, building companies should prepare for a chilly autumn as furlough schemes come to an end and the real strength of the UK economy is revealed. Making up for lost time is one thing, but sustainable real growth is what the sector needs otherwise this recovery is just building on soft sand.’

GBP/EUR Outlook: Could Stronger-Than-Expected German Trade Data Boost the Euro?

Euro (EUR) investors will be keeping a close eye on tomorrow’s Germany’s trade balance figure for June. If this shows any signs of recovery for the Eurozone’s powerhouse economy, then we could see the Euro being to claw back its losses.

Tomorrow will also see the release of Germany’s industrial production data for June. With the figure forecast to rise by 8.1%, we could see the single currency begin to gain against the Pound.

Sterling investors will be eyeing tomorrow’s publication of July’s UK Halifax house prices figures. Any improvement would prove GBP-positive.

However, the GBP/EUR exchange rate could begin to lose its gains ahead of the weekend as concerns continue to grow over Britain’s coronavirus situation. If Downing Streets hints at any concerns over a possible second wave, then we could see Sterling suffer.