The British pound is lower against the euro on Tuesday.
- Pound-euro exchange rate back to 1.10 handle
- Sterling knocked after UK May GDP misses expectations
- British government bans Huawei from 5G network
- German economic sentiment turns lower again in July
GBP/EUR was lower by 65 pips (0.59%) to 1.1000 as of 3pm GMT. This week the exchange rate is lower by -1.49%. Yesterday it fell -0.90%
The currency pair accelerated its lower trajectory from yesterday, taking out the key 1.10 handle to the downside before stabilising.
GBP: Pound knocked for second day as gilt yields fall
The pound has really taken some heat this week, so much so that it is nearing a 2-week low against the euro- having finished last week at 3-week highs.
Rising virus cases seem to have hurt most areas of the market with the clear exception of the currency market where the usual haven trade, US dollar is turning lower- perhaps on the expectation of more monetary easing from the Federal Reserve. So while the pound has held up over the dollar, it has fallen sharply against the euro.
A disappointing May UK GDP result is increasing expectations that the Bank of England will have to take extra steps to sure up the economy, likely involving more money-printing, or perhaps a move towards negative interest rates. As such UK 2-year gilt yields dropped below the equivalent JGBs in Japan for the first time ever.
EUR: Euro benefits from soft USD
Added to the weaker backdrop to Sterling was the well-telegraphed decision from the British government to stop using Huawei equipment in its 5G network, citing the difficulty with US sanctions.
The decision will on heighten UK tensions with China after Prime Minister Boris Johnson made public plans to offer residency to Hong Kong citizens after the new security law for the city was passed by the central government in Beijing.
The economic outlook for Europe according to data released on Tuesday wasn’t much to shout home about. The German ZEW Economic Sentiment survey missed expectations for -65.0, rising only to -80.9 after a previous reading -83.1. Germany CPI was unchanged from the prior reading at 0.8% year-over-year.
