GBP/EUR: Euro Slips vs Pound As Trade Wars Hit Germany
  • Euro (EUR) rises as German Q2 GDP reading revised higher from -10.1%
  • German IFO Business climate index to shed light on the outlook for businesses
  • Safe haven US Dollar (USD) out of favour as risk sentiment rises owing to improved US – Sino relations & falling covid numbers
  • US consumer confidence up next

The Euro US Dollar (EUR/USD) exchange rate is heading higher on Tuesday, after two days in the red. The pair settled on Monday -0.1% at US$1.1787, almost the low of the day. At 07:15 UTC, EUR/USD trades +0.1% at US$1.1806.

The Euro is advancing following an unexpected upward revision to the final German Q2 GDP reading. The German economy’s plunge in the second quarter wasn’t as deep as initially feared but was still a record-breaking decline.

Due to the coronavirus lockdown, the German economy contracted -9.7% in the three months from April – June, a slight improvement on the -10.1% that was previously estimated according to the German statistics office Destatis.

Attention will now turn to the German IFO Business Climate Survey. This is a closely watched report will provide further insight as to how German businesses view the outlook.

Expectations are for the German IFO Business Climate Index to continue rising in August to 92, up from 90.5 in July. The index slumped to a post pandemic low in April of 74.5. Concerns over a second wave of coronavirus will be unnerving businesses and this could prevent the index from reaching pre-pandemic levels of mid to high 90’s.

Demand for the US Dollar has fallen amid a risk on mood in the market. Optimism surrounding coronavirus statistics in the US and US – Sino trade talks is boosting demand for riskier assets and currencies whilst dragging on demand for the safe haven US Dollar.

US Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He agreed that progress was being made in the Phase 1 trade deal agreement and that more progress was coming. Any positive trade news between the two largest economies in the world, has the potential to lift market sentiment.

The US recorded 35,000 new daily coronavirus cases on Monday. This is a huge decline from the 60,000 daily cases seen a few weeks ago and is a sign that the situation is improving.

Attention will now turn to US consumer confidence data which is expected to show an improvement from July’s sharp decline.