German Business Optimism Continues to fall – EUR Exchange Rate Outlook Limited
The outlook for the Euro Pound (EUR/GBP) exchange rate worsened on Tuesday as markets responded to a sizeable fall in UK government borrowing and continually diminishing German business optimism.
Germany’s latest IFO business climate index – a highly regarded indicator of economic developments and sentiment in Germany – fell to a score of 102.1 in April, down from the March score of 103.3.
Beyond this, the current business situation and expectations indicators also deteriorated, with optimism plummeting across the manufacturing and services sectors.
‘The upbeat mood in Germany’s executives’ suites is evaporating’, said IFO President Clemens Fuest, reacting to the results.
This news also comes on the back of a string of soft ecostats from Germany in recent weeks and further emphasised market anxieties that the Bloc’s largest economy is struggling to a halt.
Pound (GBP) Exchange Rates Climb as UK Government Borrowing Hits 11-Year Low
The market outlook for the Pound (GBP) was bolstered today by news that UK government borrowing hit an 11-year low in March.
According to data from the Office for National Statistics (ONS), borrowing in the UK fell by £3.5bn to £42.6bn in the 2017-18 financial year.
This was significantly below the Office for Budget Responsibility estimate of £45.2bn from last month.
UK Chancellor Phillip Hammond shared his thoughts on the results:
‘Thanks to the hard work of the British people, borrowing is the lowest in over a decade. Our economy is at a turning point with debt starting to fall and people’s wages rising, as we build an economy that truly works for everyone’.
This news gave Sterling a marked push, and should bode well for the Bank of England’s (BoE) monetary policy decision in May, though some of this optimism was negated by a rather poor CBI business optimism survey result.
UK GDP and the ECB Rate Decision in the Spotlight – What can we Expect for the EUR/GBP Exchange Rate?
This week is a slightly quiet one for UK data thus far, but Friday’s UK GDP reading could provoke volatility in the markets.
Analysts currently expect the headline year-on-year GDP growth reading to rise from 1.4% to 1.5% in Q1 2018, but the quarter-on-quarter result is expected to hold at 0.4%.
The severe weather at the start of this year and the recent disappointing performance of the UK’s services sector could weight on this result, however, particularly with services making up a massive 80% of UK GDP.
For the Euro, the markets will remain focused on Thursday’s European Central Bank (ECB) rate decision, with investors waiting to see if the central bank will reveal intentions to end their bond buying measures before the end of 2018.
If the rate meeting proves dovish then the EUR/GBP exchange rate could encounter greater pressure.
If the bank remains optimistic in their statements, however, then the Euro could claw back some of its losses.
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