GBP/EUR: Euro Jumps vs. Pound As German Coalition Averts Collapse
  • Pound (GBP) under pressure ahead of public sector net borrowing data
  • £13.5 billion PSNB forecast
  • Euro (EUR) trades found strength from weaker US Dollar
  • German GDP & IFO business sentiment in focus

The Pound Euro (GBP/EUR) exchange rate is edging higher paring some losses from the previous session. The pair settled -0.17% on Monday at €1.1589 after falling as low as €1.1560. At 05:45 UTC, GBP/EUR trades +0.05% at €1.1595.

The Pound traded mixed versus its major peers in the previous session. Sterling gained versus the US Dollar but lost ground versus the Euro in relatively lackluster trading. The Pound barely acknowledged comments by Bank of England Governor Andrew Bailey that it looks unlikely that negative rates will be necessary.

Today attention will be on public sector net borrowing data for April. Government borrowing in April is expected to be £30 billion for the month. This comes after the government borrowed a post war record £303 billion across the full year of the pandemic. This was in fact £24 billion less than what the Office of National Statistics had originally expected.

So far the markets haven’t shown signs of concern over the high levels of borrowing. With lockdown restriction now easing and amid a successful vaccine programme government borrowing should start slowing.

The Euro bounded higher in the previous session on the back of the weaker US Dollar. As China cracked down on accelerating commodity prices, inflation fears in the US eased, pulling the greenback lower.

Today there are two key data points which investors will be watching. First up, German GDP data, the final reading for the first quarter. This is expected to confirm the earlier reading of a -1.7% contraction quarter on quarter.

Optimism is growing that GDP for the second quarter will start to show an improvement as the third wave of covid passes and restrictions are starting to be eased.

German IFO business climate data will also be in focus.  Expectations are that morale has been lifted in recent weeks as the economy starts to reopen.