Euro Pound (EUR/GBP) Exchange Rate Falls as German Business Confidence Weakens
The Euro Pound (EUR/GBP) exchange rate is falling today, as the latest German IFO business climate index indicates falling business optimism.
At the time of writing, EUR/GBP is trading at around £0.8601, falling by roughly 0.4% from the morning’s opening rates.
Euro (EUR) Struggles as German Business Confidence Decreases
The Euro (EUR) is struggling with significant selling pressure today, following the release of the latest German IFO business climate index.
The key indicator fell from 88.5 to 87.5 over July, showing the third consecutive monthly decline in German business morale. Furthermore, the reading slumped to its lowest levels since November 2022.
This reading is weighing on the common currency by not only indicating continued deterioration in the bloc’s major economy, but a wider shift in perception. At the beginning of the year, optimism was abound for the German economy – but after months of downbeat data, the forecast is growing darker.
Carsten Brzeski, Global Head of Macro at ING, commented:
‘The growing feeling that Germany is in for a longer period of subdued growth also seems to have reached German business. Both the current assessment and the expectations component fell. Expectations are now as low as at the end of last year, while the current assessment component is as low as in late 2020.’
Elsewhere, risk-on trade could be providing extra headwinds today. As a safer currency, the Euro is a less enticing prospect compared to riskier assets.
Pound (GBP) Lifted by Upbeat Trade
Meanwhile, the cheery market mood is bringing support to the Pound (GBP) today, due to its increasingly risk sensitive nature.
Hopes of further, and sustained, economic stimulus in China are contributing to the upbeat mood. The Politburo pledged to step up support for the economy, as the superpower’s post-Covid recovery continues to flounder.
With this in mind, investors are hopeful that additional stimulus for the Chinese economy would filter through to the global economy.
Furthermore, owing to recent crashes in price, investors may be looking to buy the dip, bringing further tailwinds.
EUR/GBP Exchange Rate Forecast: ECB Rate Decision Takes Spotlight
Looking ahead for the Euro, all eyes will be on Thursday’s interest rate decision from the European Central Bank. Here, the ECB are expected to hike interest rates by 25bps, bringing the current rate to 4.25%.
While this is largely priced in and expected, questions remain over the bank’s forward guidance. If they take a hawkish stance, the Euro could rally. However, a dovish outlook may weigh on the common currency.
Beforehand, the GfK consumer confidence index for Germany is due to print, which could inject volatility into EUR. Economists expect the index to have improved for August, but remain deep in negative territory.
For the Pound, the Confederation of British Industry (CBI) are set to release the latest distributive trades data. Over July, an improvement from -9 to -2 is forecast, which could lift Sterling somewhat.
