• The UK housing market’s recovery continues, providing some optimism following a dismal GDP print
  • UK economy contracted twice as much as Germany’s economy in Q2
  • Euro (EUR) advanced in risk on trading despite industrial production missing expectations
  • German inflation data in focus, -0.5% mom decline forecast

The Pound Euro exchange rate (GBP/EUR) is holding steady in early trade on Thursday. The pair settled on Wednesday -0.5% at €1.1057, marginally above the low of the day at €1.1042. At 05:15 UTC, GBP/EUR trades with no change at €1.1057.

Upbeat housing price data is helping investors move on from yesterday’s dismal GDP data. Britain’s rebound in the housing market continues to gather pace, with The Royal Institute of Chartered Surveyors’ house price index turning positive for the first time since the start of the coronavirus crisis. However, the outlook is less certain as fears grow over how the housing market will cope when the stamp duty holiday comes to an end in March

The Pound sold off in the previous session after data from the Office of National Statistics revealed that the UK experienced its deepest economic recession since records began. In the three-month April – June period, the period worst hit by the coronavirus lockdown, the UK economy shrank by -20.4%. This followed a -2.2% decline in the first three months of the year.

The UK economy fared significantly worse than its European peers. For example, Germany’s economy contracted by -10.2% in the same quarter, roughly half. This is because of the composition of the UK economy which is so heavily focused on the service sector which includes hospitality and retail, the two areas most effected by lockdown measures and social distancing.

The Euro pushed broadly higher in the previous session, boosted by a risk on mood in the market which enabled investors to look past the slightly disappointing industrial production figures for the region.

Industrial production grew by 9.1% in June confirming that the recovery in production from lockdown continues. The increase comes following a 12.3% increase in May, meaning that the pace o the recovery has slowed but only slightly in the second month of reopening the economy. Analysts had been expecting a 10% jump. Economists believe that the recovery could slow further from here due to a lack of demand following the crisis and supply chain disruption.

Attention will remain on the economic calendar with the release of German inflation data. Analysts expect to see a -0.5% decline in inflation month on month.