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Pound euro exchange rate improves as Eurozone industrial production slumps

2 min read

Bert Colijn, the Senior Economist at ING for the Eurozone, was downbeat in his analysis: “The contraction in production, which has now completed its second full year, has left production 6.9 [percent] lower than it was at its December 2017 peak.”

“November production had shown a slight uptick, but December indicates that it is too soon to call an end to the Eurozone industrial recession.”

Additionally, growing uncertainty over the impact of China’s coronavirus epidemic on the global supply chain has dampened market appetite for the single currency, with concerns rising over a possible delay to the recovery of Eurozone’s industrial sector in the near-term. 

Deutsche Bank Research also stated: “We expect the coronavirus to dampen gross domestic product by 0.2 percentage points in the first quarter, making a technical recession [for the German economy] highly possible in the winter half-year.”

The euro is coming under increasing pressure as the outlook for the German economy, which is the largest in the Eurozone, is looking downbeat.

Meanwhile, the pound rose against the euro in spite of growing concerns of a UK-EU no-deal on trade after President of the European Committee Ursula von der Leyen mocked Prime Minister Boris Johnson’s suggestion of an Australian-style trade deal with the EU. 

Mme. Von der Leyen added: “[I]f this is the British choice, well, we are fine with that without any question.”

Some of the pound’s gains have been held back after Mark Carney, the Governor of the Bank of England (BoE), called for further public spending to boost the UK’s economic growth. 

Looking ahead, the GBP/EUR exchange rate is likely to be dictated by Brexit developments in the coming days, with any further indications of a strain on UK-EU trade relations proving pound-negative as Britain’s economic outlook continues to remain uncertain.

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