GBP Tumbles Amid Deteriorating German Business Morale
The pound was ratcheted down to €1.136 against the euro on Monday morning, falling despite a soft run of German IFO business climate readings. This morning, pound investors reacted to news that the headline IFO business climate index – a highly-regarded early indicator for economic developments within Germany – deteriorated to 101.8 in June.
This is down from the last month’s 102.3 but above the market forecast of 101.7.
Meanwhile, the current economic assessment reading missed expectations altogether, printing at 105.1 compared to May’s 106.1 and the forecast 105.6.
These subpar results were attributed to diminishing business confidence in the shadow of a trade war with the US – particularly with the Trump administration threatening to target Germany’s lucrative automotive sector, a major driver of German GDP.
IFO Chief, Clemens Fuest said: “Companies were less satisfied with their current business situation.”
Whilst ING’s Carsten Brzeski pointed out that six drops and one stagnation in the past seven months was not a “promising trend”.
For the pound, investors are still digesting last week’s Bank of England (BoE) rate decision.
This involved news that BoE Chief Economist Andy Haldane had thrown his hand in with the hawks, voting for an immediate increase in interest rates, providing an undercurrent of optimism for a rate rise in August this year.
On the data front, today’s UK calendar is rather empty, but tuesday’s will feature a speech from known BoE hawk Ian McCafferty – one of the three policymakers who voted for an immediate rate hike at the June rate meeting – followed by a speech from Bank Governor Mark Carney on Wednesday.
Whilst hawkish comments will likely be no surprise, if either of them lays the groundwork for a rate rise in August then we could see GBP/EUR trade slightly higher.
This week will also feature the European Council summit – set for the 28-29 June, with Brexit negotiations and news liable to cause volatility for the pound.
Investors are largely looking for concrete outcomes that will help to dispel uncertainty and provide a clear vision of what the future might look like, but any indication that a cliff-edge Brexit might be on the cards could also heavily limit Sterling, simply because of the investor uncertainty that might ensue.
For the euro, investors will be assessing the EU Council meeting for a better insight into migration in Germany, with asylum now right at the top of the political risk spectrum for German Chancellor Angela Merkel and her ruling coalition.
If disagreement continues with long-time partners the CSU, then it could threaten to destroy the coalition and put extreme pressure on Merkel’s leadership – a major risk factor for the single currency.
courtasy: express.co.uk
photo: Exchange Rates UK
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