EURGBP Heads for 0.8600 Ahead of German Data

The EURGBP exchange rate was higher again on Friday and will start the week close to the 0.8600 level. German economic data will dominate the week and that should drive the pair. Profit-taking has set into the pound sterling after it saw its best valuation for the year at the 0.8450 level.

The EUR to GBP rate is trading at 0.8580 and tomorrow sees the release of a final GDP reading for the German economy. Sentiment survey readings will also come out for Germany this week.

Germany to see stronger third quarter

Germany will release the final reading for second quarter GDP tomorrow which is expected to show a 9.2% year-on-year gain. The country lagged some of its European peers as supply chain shortages hampered the important vehicle manufacturing sector.

Despite this, the country’s finance ministry has predicted a better third quarter. Gross domestic product grew by 1.5% on the quarter from April to June, the finance ministry said in its monthly report. This is well behind the UK’s 4.8% performance in the same period.

But the finance ministry said that surveys and forward-looking indicators such as truck mileage pointed to “unbroken optimism” among businesses and high activity during the summer. The economic reopening and lower virus cases have pushed up household spending and led to booming retail sales in May and June, it also said.

Rising virus cases in Europe were still a concern leading to pressure on the European equity markets last week.

Sunak could abandon ‘triple lock’ for pensions

There are concerns the Government could suspend the ‘triple lock’ on pensions leading to the policy being abandoned.

The latest employment figures said that pay had increased 8.8% in the three months to June as lockdowns were lifted and pensioners could receive just over £10,000 a year if the state pension rises by the same amount.

But critics say the triple lock policy is “farcical” and could end up costing taxpayers billions. The policy is also linked to inflation, which has been soaring in recent months and the government made the pensions policy a manifesto pledge.

The UK economy has seen a busy two weeks of economic data and there is nothing of note this week. The pound slipped after the latest second-quarter GDP number showed a 4.8% reading. This was one of the strongest in the developed economies, but the pound was a victim of its own success as it slightly missed a 5% target for the Bank of England.

Alongside rising virus cases and scientists’ warnings of more cases after August, the pound saw profit-taking emerge as traders worry that they have overdone their support for sterling.

Europe’s economy also saw a 2% GDP confirmation last week with hints of higher hiring in a separate report. Stronger sentiment and GDP in Europe’s largest economy this week could fuel further gains for the EUR to GBP pair.

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