EUR GBP Takes Aim at Recent Yearly Lows After IFO Data

The EUR GBP exchange rate was -0.30% lower on Monday after recent data from Germany showed a slowing in the German economy. The supply chain issues are being seen as the cause of the slowdown in Europe’s largest economy. The pound sterling also got support from data that suggested virus cases could slow to around 5,000 near Christmas.

The EUR v GBP was trading at 0.8433 ahead of the chancellor’s Autumn budget on Wednesday.

German IFO business survey shows sluggish growth

German business sentiment was lower for the fourth month running in October after supply chain bottlenecks in manufacturing and the rise in energy prices, according to the IFO institute.

The Ifo said on Monday that the business climate index fell to 97.7 from an upwardly revised 98.9 in September. The reading marks the lowest levels since April.

The weaker-than-expected business survey was followed by a negative outlook from the Bundesbank, which said in its monthly report that economic growth was likely to slow sharply in the fourth quarter.

The German central bank said that full-year growth was now likely to be “significantly” below its 3.7% prediction made in June.

The latest update follows similar slowdown comments from Chris Williamson, chief business economist at IHS Markit. Williamson said that euro area growth is a deteriorating picture. He also added that the manufacturing sector was ‘holding up’ but the output growth was one area that was part of a ‘dark picture’ due to supply chain issues.

The European central bank has its latest interest rate meeting on Thursday and traders will be keen to see how the bank responds to recent problems in inflation and the energy market.

The Bank of England has signalled a rate rise as early as this year, but the euro area is seeing a slower trajectory. The problem is Germany, where inflation is expected to rise on Thursday to 4.4%.

Ignoring that figure could lead to a fallout with the Bundesbank, however, the bank’s President Jens Weidmann has stepped down in the last week. Weidmann cited personal issues, but it is another example of hawkish policymakers leaving the building. The Bank of England saw its chief economist leave earlier in the year after he warned of higher inflation and went against the low-rate economy.

ING sees supply chain problems for the longer-term

ING bank analysts have said that supply chain problems are here to stay.

“As global demand improves and continues to support industrial production, we think supply chain problems are here to stay, making it difficult and expensive for firms to get hold of industrial inputs even as more countries recover from the pandemic,” ING said.

For export economies like Germany, the analysts said a “flood of new container capacity” will ease price pressures but not before 2023.

In the latest IFO and IHS analysis, it backs up claims by ING that shortages are rising across different sectors, including rubber producers, plastics products, electrical equipment, motor vehicles, wood, and computers and electronics.

Europe’s largest economy may struggle to lead the bloc economies for some time.

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