Earlier this week there were concerns that Germany could be about to move into a recession, after industrial output recorded a 1.9% month-on-month drop, which was the biggest since August 2015. This could potentially trigger a technical recession with two consecutive quarters of negative growth. There is justification for this which isn’t that the Germany economy is struggling, the disruption sits with a change in the Worldwide Harmonised Light Vehicle Procedure (WLTP) which is a new European emissions test.

Currency Pair% Change in 1 monthDifference on £200,000
GBPEUR2.03%€4,470

The test has been brought in following fines for companies like VW and it forces companies to use real driving data not laboratory simulations for emissions. German car manufacturers who are the lifeblood of the German economy were forced to stop offering models that weren’t compliant and this reduced sales, hence the two poor quarters.

Alternatively some argue that the European Central Bank has finally ended their quantitative easing programme, which involved injecting €2.85trn into the economy since March 2015. Since the announcement in early 2018 that the ECB will stop the stimulus, economic sentiment - which is the amount of confidence consumers and businesses have - has started to fall every month.

Car manufacturers panic growth figures

The GBP/EUR rate has remained at the current level, mainly due to the uncertainty with Brexit, and next week if the UK was to arrange a deal to stay in the EU then the rate could dramatically improve.

This does pose the question that anyone looking to sell euros may be inclined to trade before the Brexit vote, as any positive news for sterling could move us away from the current lows. Before 2018 and August 2017 the rate last touched 1.10 in 2010, proving that current levels are exceptional.

There is of course scope with a no deal Brexit for the rate to fall further, however with the uncertainties around the Eurozone there is plenty of chance for the rate to move either way.

What to watch next week

Industrial production data will be released on Monday and could well confirm the output data that we saw at the start of this week, triggering some uncertainty for the euro. On Thursday the next piece of data will be released in the form of the Consumer Price Index. This is a key indicator of inflation with the year on year data expected to remain at 1.6%.

President of the ECB Mario Draghi has hinted that the Central Bank's plans are to raise interest rates this September and inflation will be a key indicator for that decision. If Inflation levels start to fall there is less chance of a hike and as the markets have already priced in the hike you may start to see a sell-off of euros in line with a decline in inflation.

There will be plenty of movement next week for clients looking to buy and sell euros with the effects of Brexit currently being felt across the whole Eurozone. Setting either rate alerts or going once step further and placing limit orders could help you to trade if there is any major market movements that you’re looking for.

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