GBP/EUR: Euro Hit by Dreadful German Industrial Performance

• German industrial production fell -3.5% m/m in December
• Exchange rate edged higher mostly as a function of euro-weakness than Sterling strength

Pound sterling is up against the euro on Friday afternoon with more weak economic data from Germany and high expectations for the US jobs report putting pressure on the euro. Elsewhere risk sentiment in markets was waning with UK and European shares turning lower after big weekly gains.

GBP/EUR was higher by 36 pips (+0.28%) at 1.1802 with a daily price range of 1.177 to 1.182 as of 1pm GMT. The currency pair rose in early trading before stalling around the 1.18 level. The daily gains come close to erasing losses yesterday of -0.38% but still leaves it down on the week by -0.76%.

Pound to Euro – German industrial production fell -3.5% m/m in December

The result is much more than -0.2% expected, while on annual basis production was down a dreadful -6.8%. The disappointment comes hot on the heels of equally drab factory orders yesterday. Survey data has shown a steadying of the declines in German manufacturing, but the weak performance is in stark contrast to the United States, which survey data shows returned to manufacturing expansion in January.

German heavy industry is in a sorry state and is showing little sign of a recovery. A period of manufacturing contraction is not exclusive to Germany, it has been happening in the US, UK and other parts of Europe. The difference is the relatively high influence manufacturing has on the Germany economy. Manufacturing represents 20% of the German economy compared to 11% in the United Kingdom and the United States.

The pound – exchange rate edged higher mostly as a function of euro-weakness than Sterling strength

The main economic data for the UK is out of the way so on Friday the exchange rate edged higher mostly as a function of euro-weakness than Sterling strength.

A reset in expectations for UK interest rates made the British pound one of the best performing currencies in January but things have taken a turn for the worse in first week of February. Attention has shifted away from monetary policy, where a bias to raise rates sill appears to exist. A greater consideration is now being given to trade and future negotiations between the UK and the European Union.

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