The value of the GBPEUR interbank rate has been largely driven by developments on Brexit negotiations. Over the last week developments and commentary from EU chief Brexit negotiator Jean-Claude Junker's statement that the risk of a no-deal Brexit has ‘never been higher’ weakened the pound making it cheaper to buy with the euro.
EURGBP interbank rates yesterday visited some of the best levels seen for a month as a result presenting client selling euros to get more pounds for their money. This was probably welcome news as the euro economic woos have been continuing recently.
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At the beginning of the week the Organisation for Economic Co-operation and Development (OECD’s) latest forecast for German growth was reduced to just 0.7% in 2019 down from the forecast before of 2%. This drop contributed to the euro weakness as it means that Germany widely considered as the ‘engine room’ for economic growth within the EU is forecasted to grow at a slower pace than the euro area as a whole at 1%.
This forecast for growth was also recently matched by the influential (Institute for Economic Research) IFO institute which cut its forecast too, dropping forecasts for 2019 from 1.1% to 0.6%. This would be the lowest growth since 2013.
Following the economic crisis some 9 years ago, a majority of western Central Banks started a process of quantitative easing (QE) including the European Central bank (ECB). In December the bank ended its QE program on monetary stimulus after its eight-year campaign to boost growth.
At their last meeting they announced a U-turn, setting alarm bells off for Europe as the ECB started more stimulus in the form of cheap leans to banks with a pledge to keep interests at zero through this year.
Part of the problem has been the slowdown in growth for Germany as it reaches nearly full employment. Unemployment is at its lowest level since the 1970s with only 800,000 jobs unfilled.
Economic data for Europe and Germany will remain very important when looking at the future value of the euro. Next on the horizon is todays manufacturing data release from Germany and the EU as a whole. German confidence figures are released on Monday which could also be something to keep up to date with as it could impact the euro's value.
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