Euro Pound (EUR/GBP) Exchange Rate Softens on Weakening Euro Exports
The Euro Pound (EUR/GBP) exchange rate is weakening as German trade figures highlights a contracting export sector.
At time of writing, the EUR/GBP exchange rate is around £0.8559, a 0.42% fall from this morning’s opening levels.
Euro (EUR) Undermined by Weakening German Exports
The Euro (EUR) is struggling for demand this morning after a shock contraction in German exports.
Eurozone sentiment is waning after it was revealed that Germany’s trade surplus narrowed drastically. From a downwardly revised €16.5bn to €14.4bn, far below expectations of €17.5bn. It represented the smallest trade surplus since December 2022 as exports unexpectedly fell 0.1%, compared to a predicted 0.3% increase. Carsten Brzeski, Global Head of Macro for ING, said of the latest data:
‘Since last summer, German exports have been extremely volatile. However, the general trend is pointing downwards, not upwards. Trade is no longer the strong resilient growth driver of the German economy that it used to be.’
With concerns mounting for the largest economy in Europe, EUR investors could become concerned with the German economy. Another decline in June could mean Germany’s recession would have continued into the second quarter of 2023.
Pound (GBP) Supported Despite Looming Recession
Meanwhile, the Pound (GBP) is finding modest strength against the Euro despite fears over the economic uncertainty surrounding the UK. Amid a lack of economic data, GBP investors appear focused on the impact of surging borrowing costs.
With inflation still far above the target rate of 2%, the BoE will be forced to continue their aggressive tightening cycle. With many market participants predicting another bold hike of 50bps, investors could be more concerned with the uncertainty surrounding the fragile economy. Economists at Rabobank warned that a hawkish rhetoric might not be a good thing for the Pound:
‘Despite widespread expectations about the potential extent of BoE rate hikes in the month ahead, in our view, GBP’s upside will be limited by concerns that tighter monetary policy also enhances growth risks. As demonstrated on several occasions last year, BoE rate hikes do not always lift the Pound.’
Euro Pound Exchange Rate Forecast: Souring Services to Sap Sterling?
Looking ahead, the Euro Pound exchange rate could see further fluctuations with the final readings for services PMI in both the UK and the Eurozone. An expected further slowdown in the UK’s crucial service sector could dent the Pound. Against expectations of 53.7, despite remaining in expansion territory, it would represent the third straight month of slowing growth.
Meanwhile, Eurozone services PMI is also expected to slow for the third consecutive month. With a marked slowdown in consumer spending and business activity easing, another slowing month of activity could weigh on the Euro.
