German Woes Sap Euro Support, GBP to EUR Rate Holds Around 1.1950

October 8, 2024 - Written by Tim Boyer

STORY LINK German Woes Sap Euro Support, GBP to EUR Rate Holds Around 1.1950

The Pound to Euro (GBP/EUR) exchange rate has consolidated around 1.1950 despite a more fragile risk environment with Pound sentiment holding firm despite weaker equities while the Euro has again been hit by dismal data.

The latest COT data, reported by the CFTC, recorded an increase in long Pound positions to near 94,000 contracts from 87,000 the previous week, maintaining the risk that long positions could be liquidated, especially if risk appetite deteriorates further.

As far as the UK economy is concerned, the latest Recruitment and Employment Confederation (REC) survey indicated a further loosening in the labour market.

According to the survey, growth in starting pay for permanent roles was the lowest since February 2021.

There was also a further decline in permanent job placements while vacancies dropped for the 11th consecutive month and at the fastest rate since March.

Jon Holt, KPMG's UK chief executive and senior partner commented that; “the easing in pay pressures could strengthen the case for a further cut in interest rates at the BoE's next meeting in November.”

Halifax recorded that house prices increased 0.3% for the second successive month in September with the year-on-year increase at 4.7%, the strongest increase since November 2022.

According to Halifax Head of Mortgages Amanda Bryden; “While improved mortgage affordability should continue to support buyer activity – boosted by anticipated further cuts to interest rates – housing costs remain a challenge for many. As a result, we expect property price growth over the rest of this year and into next to remain modest.”

There has been no let-up in bad news surrounding the Euro-Zone economy.

German factory orders slumped 5.8% for August after a revised 3.9% increase the previous month and compared with consensus forecasts of a 2.0% retreat.

Commerzbank's senior economist Ralph Solveen commented; "Today's data confirm that demand for German industrial goods has continued to weaken. This suggests that the German economy will at best stagnate in the second half of the year."

He added; “A revival is not expected until next year and even this is likely to be very modest.”

In comments over the weekend, ECB council member Villeroy stated that ECB will probably cut interest rates on October 17, reinforcing market expectations of a further near-term rate cut.

He noted that economic growth is weak and added; "In the last two years our main risk was to overshoot our 2% target, now we must also pay attention to the opposite risk, of undershooting our objective due to a weak growth and a restrictive monetary policy for too long."

Danske Bank commented; “Next ECB meeting is on 17 October, where we expect ECB to deliver another 25bp rate cut.”

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TAGS: Pound Euro Forecasts