The single currency came under pressure on Friday as disappointing German data fuelled fears the bloc’s largest economy might be heading for a third quarter recession. However, this was offset by pressure on the pound as the British high court deemed Boris Johnson’s decision to suspend parliament ‘entirely legal’. A surprise slump in German industrial output confirmed fears that economic slowdown, Brexit and the US-China trade dispute have combined to strangle the bloc’s largest economy.
During her Beijing visit to meet President Xi, German Chancellor, Angela Merkel said the US-China trade war was ‘affecting the whole world’.
Claus Vistesen, Chief Eurozone Economist at Pantheon Macroeconomics noted: “The July industrial production headline combined with the dreadful retail sales number now sends a convincing signal that the German economy is in recession. The August and September numbers could still spring upside surprises, but we don’t have high hopes.”
VP Bank Group Economist, Thomas Gizel was similarly sober: “The nightmare is now unfolding, and it can’t be shaken off.”
Nevertheless, a German industrial decline could do little to stop the single currency rising against a weaker pound on Friday afternoon.
Uncertainties surrounding Brexit saw Sterling edge lower today after a week of political chaos.
The currency plunged to a three year low at the start of the week before attempts by opposition and rebel MPs lessened the risk of a no-deal and threw the British currency a lifeline. This then saw Sterling rebound, rising steadily toward Thursday.
By the end of the week political turmoil had seen the Prime Minister lose three pivotal votes, a rejection of his call for an early general election and the expulsion or resignation of twenty two rebel Tory MPs, including party stalwart Ken Clarke and the PM’s own brother Jo Johnson.
Looking ahead to next week, the GBP/EUR exchange rate could be left flat if the German trade balance reveals a further weakness in the bloc’s largest economy.
However, political developments are set to influence pound movement and could see a stronger pound if this week’s bill to delay Brexit passes into law on Monday.