Tomorrow will be a significant day of data for the EU as we expect to see the latest Gross Domestic Product (GDP) data along with the Consumer Price Index (CPI) data. The GDP data is forecast to show a fall of 12% from the previous quarter and the year on year -14.5%. However, the year on year CPI data is expected to show a small increase to 0.2% for July. If the readings do perform better than the forecast then there could well be a boost for the euro v pound exchange rate however anything below expectations could have the opposite effect.
Many of the EU countries much like the UK have been hit incredibly hard following the pandemic. The northern countries in the EU are showing signs of the economies bouncing back as their manufacturing and production can return to normal. However the southern economies which rely on tourism are unlikely to see returns to previous levels anytime soon. Whilst tourists from the UK especially can still travel to the likes of Spain and Portugal the quarantine for two weeks will stop many from going. Portugal will have lost its main industry for the whole of summer and when the following months GDP figures are released, the damage to the economy will be clear as they have no substitute to tourism.
The EU nations had agreed on a stimulus package earlier this month to help support the economies with both grants and low interest loans, which was received well by the markets but these funds will not become available until January next year which may be to late for many businesses. The euro has been strong in the past few months potentially due to US Dollar concern, with the euro being the second most traded currency in the world. It will be interesting in the coming months if that will still be the case.
Brexit Talks Progressing but Slowly
This week we have seen several top EU politicians have their say on the current Brexit talks with many optimistic that there will be a deal within the timescale of the end of 2020. However there is currently some who’re not thought to be happy with the direction. Close sources to French President Emmanuel Macron is thought to be adamant that there wont be a deal unless the UK allow EU boats to fish in our waters. The fisheries is one of the UK’s trump cards with the EU and they’re using it a s a major bartering tool.
There is slowly becoming a realisation that the UK and EU need a deal especially when you consider the fallout from Covid-19, there has been so much across different economies that further disruption will be detrimental to recovery. The EU has agreed on a €750bn bailout fund for the bloc which will not come into play until January next year which could well be to late for many businesses. The Netherlands, Austria, Sweden and Denmark were named the frugal four as they wanted to make sure the bailout funds were in the forms of loans rather than grants. This is a indication of an issue the EU will need to address in the near future as some companies commit to the rules whilst the others continue to act with no consideration.
It is very difficult to have economic policies in place for different countries all performing at different levels and this is coming to fruition. Once the Brexit talks are over the EU will no doubt look to move on with their unity plans with further cohesion planned for the single bloc. The euro has been performing well in the last few months especially against the US Dollar as the single currency is the second most traded currency. The uncertainty surrounding the US is taking its toll on the Greenback and investors appear to be using the euro as the next best place to keep their funds. This is mainly due to how much of it is traded and when there is large amounts of currency the impact tends to be less severe when major events take place.
The euro has made these gains but come the start of next year it will be interesting to see if that continues as the Global economy begins to recover. Get in touch using the form below to discuss these factors in more detail, and how your upcoming currency exchange may be impacted.