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German growth contracts in Q2, is Europe’s powerhouse headed towards recession?

currency-newsGerman growth contracts in Q2, is Europe’s powerhouse headed towards recession?
The euro finds itself in the spotlight today as markets react to a contraction in German GDP in the second quarter.

The pound is trading statically so far today, with GBP/EUR muted at €1.0784, GBP/USD flat at $1.2055 and GBP/CAD steady at C$1.5962. Both GBP/AUD and GBP/NZD have crept slightly higher, striking AU$1.7795 and NZ$1.8698 respectively.

The UK’s latest CPI figures are also in focus this morning. An expected slide in inflation is likely to limit the appeal of the pound.

What’s been happening?

The euro softened yesterday as concerns over the Eurozone economy were stoked following a sharp drop in economic sentiment.

This morning’s German GDP figures fed into these fears as a contraction in the second quarter stoked speculation the country could be headed towards a recession.

Meanwhile, GBP investors looked to the UK’s latest labour report to provide some Sterling support yesterday after UK wage growth rocketed to an 11-year high in June.

However, the pound was ultimately left directionless after the accompanying employment figures revealed a shock rise in the unemployment rate over the same period.

The US dollar also found itself struggling to find momentum on Tuesday, with expectations of another rate cut from the Federal Reserve next month limiting any upside from domestic core inflation hitting a six-month high.

What’s coming up?

We expect Germany’s GDP figures to be the main catalyst of currency movement today, with the single currency likely to face pressure throughout the session amidst fears the country may be headed towards a recession.

The UK’s CPI report will also be in the spotlight. The pound could give up some ground this morning if domestic inflation slowed as expected in July.

Finally a lull in US economic data is likely to see the direction of the US dollar influenced by external factors.
This may result in USD exchange rates strengthening if we see markets remain risk-off in the face of growing unrest in Hong Kong and a further deterioration in the Argentine peso.
 
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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