The publication of Germany’s latest GDP figures, which indicate the Eurozone’s largest economy could be heading toward a recession, left the euro feeling quite fragile this morning. Destatis reports German economic growth shrank 0.1 percent in the second quarter, stumbling from a 0.4 percent expansion at the start of the year. The slump in growth came as little surprise to markets, with domestic industrial data souring in recent months – an indication of global trade tensions taking their toll on the German economy.
Carsten Brzeski, chief economist for Germany at Dutch bank ING said: “Trade conflicts, global uncertainty and the struggling automotive sector have finally brought the German economy down on its knee.”
However, with year-on-year growth coming in above expectations, the euro seems to be holding ground so far this morning.
Meanwhile, the pound is trading in a narrow range following the publication of the UK CPI figures.
According to data published by the Office for National Statistics (ONS), UK inflation unexpectedly accelerated in July, climbing from 2 percent to 2.1 percent and beating forecasts predicting a slide to 1.9 percent.
While GBP investors welcomed the uptick in inflation, Brexit remained firmly in the spotlight and Sterling showed little reaction to the data.
Looking ahead to the end of the week, we could see the GBP/EUR exchange rate give some ground with the release of the UK’s latest retail sales figures.
Thursday’s data is forecast to show a slump in sales growth last month and a drop from 1 percent to -0.2 percent.
This would fuel concerns that the UK economy is on track to contract again in the third quarter, likely limiting the appeal of the pound.
In the meantime, and in the absence of any notable economic data, we may see the euro driven by political developments in Italy.
The country has been rocked by political turmoil over the past week as Italian deputy Prime Minister Matteo Salvini seeks to bring down the coalition government. EUR investors are unnerved by the prospect of a Salvini led far-right government winning a majority in fresh elections.