GBP/EUR: Brexit No Trade Deal Fears Depresses Pound

• GBP investors have been short of economic data to focus on in the latter part of this week
• Euro traded broadly flat versus its peers in the previous session despite dismal German data

The pound skidded lower versus the euro on Thursday as Brexit concerns overshadowed surprisingly weak German data. The pound euro exchange rate declined 0.3% to close the session at €1.1775. The pair has shed over 1% so far this week as it moves into the last day of trading ahead of the weekend.

Pound to Euro: GBP investors have been short of economic data to focus on in the latter part of this week

This left investors little choice but to center on the future EU – UK trade relationship. Boris Johnson’s hard negotiating stance is unnerving pound investors. The prime minister laid out plans which could deprive the UK financial sector access to the EU market.  This has alarmed investors, particularly given the importance of what the financial services in the UK contribute to the economy.

In 2018 UK financial service exports to EU was worth over £26.1 billion against imports of just £6.1 billion. The EU is the UK’S largest financial market export market. Whilst many financial services firms have contingency plans, these are at a bare minimum. In the case of a no trade deal Brexit, many firms would almost certainty shift more staff and resources over to the continent. This would be bad news for the UK economy.

Euro traded broadly flat versus its peers in the previous session despite dismal German data

Factory orders from Europe’s largest economy unexpectedly slumped in December by -2.1% month on month, the fast pace of declines in almost a decade. This was well short of the 0.8% forecast. On an annual basis factory orders declined -8.7% compared to a year ago, down from -6%.

Factory orders are a closely watched gauge because they indicate future output. The data clearly shows that the recession in the German manufacturing sector is far from over.

Euro investors could be in store for more disappointing data. Analysts are expecting German industrial production to decrease -3.7% compared to a year earlier, in December, down from -2.6% in November.

These figures won’t include any impact of coronavirus. Some banks are predicting that China will only reach economic growth of 4.6% this year, short of its 6% target. Any economic slowdown will be felt in exported nation Germany.

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