EURGBP Higher as Market Awaits German IFO

EURGBP Points Lower Ahead of ECB and UK GDP Data

The EURGBP exchange rate was 0.09% higher on Tuesday as traders await the latest German IFO business sentiment gauge. The German GDP number failed to spark the pair as the number showed a 0.1% larger drop than expected as the country remained in lockdown.

The EUR to GBP rate is trading at 0.8637 in early trading and the UK also saw borrowing at less than expected, however figures are still at peacetime records for government debt.

German GDP falls more than expected

The German economy has contracted slightly more than initial estimates for the first quarter due to the coronavirus pandemic, according to the statistics agency Destatis on Tuesday.

Gross domestic product fell 1.8 percent in the first quarter, in contrast to the 0.5 percent growth seen in the fourth quarter. The number was revised from -1.7 percent. The annual decline in GDP extended to 3.4% from 2.3% in the fourth quarter.

Compared to the fourth quarter of 2019, which was the last free quarter before the pandemic, economic output was 5.0 percent lower, according to Destatis.

The economy will now await the release of German IFO business climate index figures, but the sentiment number may not give away any real change that is not expected. The reopening of the economy will see Q2 GDP boosted in Germany, but the country will need to see a further boost as the GDP numbers were below the Eurozone average for growth.

UK borrowing at records, but lower in April

UK borrowing in April reached its second highest level ever, but the figures were still lower than last year at the height of the pandemic.

Public sector net borrowing for the UK was estimated to be £31.7bn, according to the Office for National Statistics. The number was £15.6bn less than in April 2020, when the country borrowed around £47bn during the first virus wave.

The numbers are still at the second highest April reading since the monthly records began in 1993. The UK has splurged on things such as the NHS Test and Trace, and the vaccine rollout, while the furlough remains in effect. The latest reading is less than the £39bn which the OBR had forecast ahead of the March pre-budget forecast.

Conservative MP John Redwood tweeted in response:

“Time to lift the threat of higher U.K. taxes. April numbers show extra state borrowing down on last year even before full recovery is underway. More growth is the way to get the deficit down. Official forecasts of new debt are too pessimistic.”

The borrowing figures have been suppressed by the reopening of the economy and as long as that stays on track, the UK should continue to see borrowing come down, although the furlough is still a headwind.

The EURGBP has resistance at 0.8700 and support for the year is below 0.8500 but the rest of the week is quiet for economic sentiment data and may now change the outlook much.