GBP/EUR: Pound Holds Rishi Sunak Inspired Gains

• GBP to EUR: Pound has centered on Brexit and domestic politics across the second half of the week
• GBP/EUR: Euro dropped amid worsening conditions in Germany

UK Chancellor Sajid Javid’s resignation and the appointment of Rishi Sunak sent to the pound surging high on Thursday.

The pound euro exchange rate rallied to its highest level since mid-December at €1.2009 in its fourth consecutive session of gains.

GBP to EUR: Pound has centered on Brexit and domestic politics across the second half of the week

There has been little in the way of UK economic data across the second half of this week.

The pound marched higher across the session on Thursday as the focus fell on the reshuffle of Boris Johnson’s cabinet. The most notable development for pound investors was UK Chancellor of the Exchequer Sajid Javid resigning and being replaced by Rishi Sunak.

The pound rallied for several reasons. Firstly, Rishi Sunak is considered a continuation play from Sajid. However, he is seen as more under control and more malleable than Sajid. With the UK budget less than 1 month away this is very important. Investors are now pricing in a larger boost to fiscal spending in line with Boris Johnson’s desires. Higher government spending could provide the UK economy the support that it needs across the first half of 2020 whilst UK – EU trade deal negotiations take place.

Higher fiscal spending underpinning the economy could convince the Bank of England to hold off on any potential rate cuts across the first few quarters of the year.

GBP/EUR: Euro dropped amid worsening conditions in Germany

The euro dropped across the board in the previous session amid worsening conditions in Germany and amid growing speculation of more European Central Bank stimulus.

Today investors will look towards the release of GDP data from both Germany and the eurozone. Analysts are expecting the German economy to expand 0.1% quarter on quarter in the fourth quarter, as it did in the third quarter. However, annual GDP is expected to be just 0.2%, down from 1%.

With industrial production and factory order still falling, declining exports and the unknown impact of coronavirus there is a good chance that the German economy will be flirting with recession once again.

The German economy is the largest economy in Europe. Economists often consider the fate of the German economy is the fate of the euro. If German GDP fails to reach 0.1%, the euro, already at a low versus the pound could have further to fall.

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