GBP/EUR: Collapsing German Economic Sentiment Hits Euro

The British pound is up against the euro on Tuesday following survey results showing a sharp downturn in German economic sentiment brought about by concerns over the coronavirus, while new UK Chancellor Rishi Sunak confirmed the UK budget will go ahead on March 11.

Pound to euro was higher by 53 pips (+0.44%) at 1.2050 with a daily price range of 1.197 to 1.206 as of 1pm GMT.

GBP/EUR jumped back to multi-year highs in early European trading with a retest of the 1.205 level. The gains today switch the exchange rate into the black with a small weekly gain of 0.04%

EUR

German investors voiced their unease at the current state of the Germany economy with a much sharper than expected drop in sentiment. The results saw the euro press past last Thursday’s trough to reach fresh multi-year lows. The German ZEW survey showed ‘economic sentiment’ fell to 8.7 from 26.7, comfort in the ‘current situation’ fell to -15.7 from -9.5. As a reminder, last week data showed the German economy had flatlined in the fourth quarter while industrial production continued to fall in December.

There are signs that European politicians are starting to grasp the extent of the problems at hand. On Tuesday EU finance ministers recommend fiscal stimulus, but only if things get worse. A document issued by the ministers, including Germany’s Scholz said “If downside risks were to materialise fiscal responses should be differentiated, aiming for a more supportive stance at the aggregate level, while ensuring full respect of the Stability and Growth Pact.”

GBP

There had been some concerns that the UK budget would be delayed because of the surprise switch of Chancellor in last week’s government reshuffle. The political uncertainty had been weighing on Sterling. The confirmation today by new Chancellor Rishi Sunak has soothed those concerns by confirming the budget will indeed happen on March 11, as previously indicated by Ex-Chancellor Sajid Javid.

Earlier on Tuesday the pound had fallen when data showed wage growth for December came in a little cooler than expected at 2.9% instead of the 3% expected.

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