Weekly Worst for Euro to Pound Exchange Rate as German Economy Contracts More than Feared

Euro to Pound Exchange Rate Continues to Tumble amid Underwhelming Eurozone Data
After weeks of strong performance, the Euro to Pound Sterling (EUR/GBP) exchange rate has been tumbling this week. The Euro (EUR) outlook remains comparatively optimistic, but some underwhelming data has knocked it further.

After opening this week at the level of 0.9110, EUR/GBP briefly held its ground.

Since the middle of the week though, EUR/USD has been trending lower. Today’s data saw further losses for EUR/GBP, with the pair now trending near lows of 0.9037. This was the lowest level for the pair in over a week.

The Pound (GBP) has been able to benefit from weakness in rival currencies. However, its potential for gains is limited amid a lack of support in the British outlook.
Euro (EUR) Exchange Rates Hit as German Economy Contracts More than Forecast
Hopes for the Eurozone economy to rebound from the coronavirus pandemic have been among the main reasons for persisting Euro strength in recent months.

However, it’s because of this that today’s German Gross Domestic Product (GDP) growth rate data has surprised and concerned investors.

Germany’s economy was forecast to contract at around –9% in Q2, but instead the quarterly contraction came in at –10.1%. The yearly contraction was also deeper than expected at –11.7%.

It marked the biggest quarterly contraction since quarterly calculations began in 1970, even larger than during the financial crisis.

Still, some analysts noted that Germany’s economy has already shown signs of recovery since Q2 ended. This has limited the Euro’s losses.
Pound (GBP) Exchange Rates Benefit from Rival Weakness
The Pound has been advancing against many major currencies this week, despite a lack of fresh support for the British currency.

Sterling is benefitting mostly due to weakness in rivals. As the Euro is sold from its best levels amid concerns over German growth, EUR/GBP is falling.

Sterling is also benefitting from US Dollar (USD) weakness. USD is being sold amid fears that the US economy will continue to be hard hit by the coronavirus pandemic.

Britain’s outlooks remain filled with uncertainties though. Britain still has a high coronavirus infection rate, and no-deal Brexit fears persist.

As a result, Sterling’s gains have been limited overall.

Euro to Pound (EUR/GBP) Exchange Rate Losses May Be Limited
Investors have been selling the Euro to Pound exchange rate this week. However, the Euro’s outlook remains relatively optimistic and the Pound’s outlook is still gloomy.

As a result, analysts are still predicting that EUR/GBP is actually likely to remain fairly strong.

According to strategists at ING:

‘Looking at EUR/GBP, the pair does not appear overly stretched and more potential GBP stress as post-Brexit uncertainty rises points at further upside potential, in our view,’

The Euro outlook may find even more solid support before the end of the week if the Eurozone’s Q2 growth data beats forecasts.

On the other hand though, if Eurozone growth and inflation stats disappoint investors tomorrow it could briefly push EUR/GBP even lower.

Still, there would need to be a notable shift to disappointing Eurozone data for the Euro to Pound (EUR/GBP) exchange rate to take a sustained bearish tone going forward.