Euro to Pound Sterling (EUR/GBP) Exchange Rate Falls as ZEW Sentiment Index Tumbles

The Euro fell against the Pound and the majority of its most traded peers on Tuesday after investor fears were confirmed after the ZEW Sentiment Index data for Germany and the wider Eurozone came in well below forecasts.

Investor worries that the European Central Bank will introduce new measures to try to stimulate the flagging Eurozone economy were confirmed after data out of Germany (the Eurozone’s largest economy) showed that economic sentiment declined sharply in August.

The ZEW Centre for Economic Research said that its index for German sentiment tumbled by the 27.1.5 points seen in July to 8.6 in August, the lowest level seen in 20-months. Economists had been forecasting for a decline to 18.2 points.

The Current Conditions Index also showed a sharp decline by deteriorating from July’s figure of 61.8 to 44.3 in August, worse than the 55.5 forecast by economists.

‘The decline in economic sentiment is likely connected to the ongoing geopolitical tensions that have affected the German economy by now. In particular, current figures on industrial production and incoming orders suggest markedly reduced investment activities on the part of German firms against the backdrop of uncertain sales prospects. Since the economy in the Eurozone is not gaining momentum either, the signs are that economic growth in Germany will be weaker in 2014 than expected,’ said ZEW in a statement.

The report also showed a marked reduction in industrial production and incoming orders.

With Russia being Germany’s largest trading partner outside of the EU, the tit-for-tat economic sanctions introduced by the West and Russia have had a significant negative impact upon the nation’s economy.

Sentiment for the wider 18 member Eurozone also dropped sharply.

Sentiment in the 18-member currency bloc plunged to 23.7 in August from the 48.1 reading seen in July. The figure was also well below economist expectations for a decline to 41.3.

On the index, a level above 0.0 indicates optimism; a level below 0.0 indicates pessimism.

The cause of the sharp declines was a result of geopolitical tensions in Ukraine.

Pound to Euro (GBP/EUR) Exchange Rate Forecast

The Pound to Euro exchange rate is likely to make further gains throughout the rest of the session as the impact of the awful ZEW data sinks in.

On Wednesday, Sterling is likely to see volatility due to the release of the latest UK wage growth, inflation and unemployment data.

If wages show signs of improvement then Sterling is likely to make gains, as investors will raise their bets for the Bank of England to raise interest rates before the end of the year.

Euro Exchange Rates