GBP/EUR: Pound Steady vs. Euro As Angela Merkel Steps Down

Concerns over the health of the German economy and US – China trade headlines sent the euro US dollar exchange rate tumbling lower across the previous week. The pair dropped over 1.3%, closing the week at US$1.1018, its lowest level in almost a month. The pair is advancing in early trade on Monday.

Let’s take a look at the factors that have been driving the pound US dollar exchange rate across the week.

Eurozone data was broadly encouraging across the previous week. However, manufacturing in the bloc remains firmly in contraction. The services index for the eurozone improved, although German’s PMI remained below 50, the level which separates expansion from contraction.

Industrial Production in Germany was notably poor. Furthermore, the European Commission slashed growth forecasts for the bloc for this year and next. The negative data overshadowed the stronger PMI’s.

With fears over the health of the German economy front and central for euro investors, all eyes will be on German GDP data later this week. The German economy contracted in the second quarter. Market participants fear that it contracted again in the third quarter. Two consecutive quarters of contraction make a technical recession.

Should Europe’s largest economy fall into recession, concerns of contagion could spread. Furthermore, investors could expect the European Central Bank to ease monetary policy further to support the economy, potentially dragging the euro lower.

The euro has barely flinched at the Spanish election. This shows that investors are not concerned about political instability in Madrid.

Trade Headlines Remain Key

The US dollar trended higher across the previous week. Stronger than forecast US services sector data quelled concerns over the health of the US economy, pushing back Fed cut bets. The US manufacturing sector is experiencing a slump amid the ongoing US – Sino trade war. However, data is showing that the slump is not spilling over into the dominant service sector.

US – China trade headlines also drove the US dollar higher. Whilst the headlines continue to be two steps forward one step back, overall, they were positive, sending US stock markets to all time high’s. Reports indicated that the two powers are inching towards the signing off a first phase trade deal, which could include the rolling back of already implemented trade tariffs. The prospect of a deal lifted the dollar. Traded headlines will remain key again this week.

In addition to trade, investors will be watching US inflation data and Fed Chair Powell’s testimony before Congress on Wednesday and Thursday.

 

What do these figures mean?
When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.

For example, it could be written:

1 EUR = 1.12829 USD

Here, €1 is equivalent to approximately $1.13. This specifically measures the euro’s worth against the dollar. If the U.S. dollar amount increases in this pairing, it’s positive for the euro.

Or, if you were looking at it the other way around:

1 USD = 0.88789 EUR

In this example, $1 is equivalent to approximately €0.89. This measures the U.S. dollar’s worth versus the euro. If the euro number gets larger, it’s good news for the dollar.

 

 


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