Pound Euro (GBP/EUR) Exchange Rate Bounces Back Thanks to Eurozone Industrial Production Slump

February 12, 2020 – Written by Frank Davies

Weaker-than-expected Eurozone industrial production figures encouraged the Pound Sterling to Euro (GBP/EUR) exchange rate to push higher on Wednesday.

While forecasts had pointed towards a fresh deterioration in production, following the falls seen in Germany and Italy, the extent of the decline caught investors off guard.

As output plunged -2.1% on the month in December this offered further evidence of the negative impact that global trade tensions on the currency union.

With the Trump administration still signalling a willingness to impose tariffs on the EU the risk of a further slowdown in manufacturing sector activity appears high.

Lingering fears over the potential for a fourth quarter German economic contraction helped to push the Euro lower across the board.

Even though support for Pound Sterling remained generally muted in the wake of Tuesday’s underwhelming fourth quarter UK growth data this was not enough to prevent GBP/EUR exchange rate gains.

German Inflation Data Unlikely to Offer Euro Exchange Rate Rallying Point

Confirmation that the German consumer price index picked up from 1.5% to 1.7% in January is unlikely to offer EUR exchange rates any boost on Thursday.

As the impact of the inflation uptick has already been effectively priced into the Euro anything short of a positive revision may have little impact on investor sentiment.

Greater focus looks set to fall on the release of the European Commission’s latest forecasts, which could underline existing worries over the Eurozone outlook.

If the European Commission signals greater anxiety over the health of the Eurozone economy this could leave the Euro vulnerable to further selling pressure.

EUR exchange rates could face particular losses on the back of any negative German forecasts, given fears over the health of the Eurozone’s powerhouse economy.

As long as the currency union appears at risk of shedding further momentum in 2020, extending the slowdown that started in 2018, support for the Euro is unlikely to improve.

Euro Vulnerable to Weaker Fourth Quarter German Gross Domestic Product

The GBP/EUR exchange rate could gain additional ground ahead of the weekend on the back of the fourth quarter German gross domestic product data.

While forecasts point towards a steady monthly reading of 0.1% markets are wary of the potential for a downside disappointment.

A negative growth figure, or even a quarterly stagnation, would increase the risk of the German economy sliding back into a state of recession in the coming months.

Unless investors see renewed cause for confidence in the outlook of the Eurozone’s powerhouse economy demand for the Euro looks set to weaken.

Demand for the Pound, however, could prove limited in the remainder of the week thanks to a lack of major UK data releases.

Lingering worries over the future trade relationship between the UK and EU may see the GBP/EUR exchange rate stumble in the days ahead.

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TAGS: Pound Euro Forecasts