Pound to Euro: Rocky Week for EUR as Eurozone GDP Crash Expected

GBPEUR Looking to GDP to Save the Uptrend

The ongoing developments of COVID-19 and its global spread of ravaging economies could be catching up with the Eurozone as Friday marks the release of the Bloc’s Q2 Gross Domestic Product release. Should the pandemic show its true colours in how damaging it has been within Europe, FX Street has made predictions that following the Q1 release at the 3.1% contraction, Q2 could fall to more than 4X the size at a shocking -14.5%. Whilst the nature and circumstance of this release could have severe implications for the single currency, the Eurozone has got off comparatively lightly when considering that Thursday’s release for the US’ GDP Q2 could collapse by just over a third to 34%. With the US being the world’s largest superpower, this release could also weigh heavily on USD exchange rates meaning that the euro to US dollar could move substantially above the current 1.17 levels. This would come as further welcomed news for clients holding euros to buy US dollars as the rates have been climbing consistently since the 1.08 levels in May which have now gained almost 10% in the last 3 months.

Could the Pound to Euro Benefit from EUR Weakness this Week?

The pound to euro rate may regain some of its lost ground too if Europe’s GDP result comes in as expected. This could give Sterling some respite as the currency pairing have, following 2 months of euro inroads, been at a stalemate between the resistance levels of 1.09 and 1.11 allowing the pound to push closer to its 1.15 on mid-market that was seen earlier this year.

Having said this, back in April when the UK experienced its worst economic fallout since the Great Depression of the 1930’s, GDP fell over 20% and only experienced a comparatively small degree of currency weakness. This is potentially due to the fact that global economies were shrinking this year with the World Bank predicting average decline to fall at 5.2% for 2020. It could mean that in these unprecedent times that even a data release of this magnitude may not have the expected euro weakness.

German GDP to Witness Significant Economic Contraction

Germany, widely considered as the engine room of the Eurozone, is also expecting to see the detriments of the Coronavirus with GDP predictions set to fall from -2.2% to 9% on Thursday. As the largest economic in the Bloc, this could also keep the pressure on euro rates due to how important the member state is to keeping Europe’s economies afloat. Other aspects from German releases are set to remain more stable as unemployment rates, also on Thursday, are likely to remain unchanged at 6.5% and Harmonized Consumer Price Index only to drop slightly from 0.8% to 0.4%.

Friday could differ though with more significant reductions as Germany’s retail sales figures could drop to 1.4% from 3.8% as high streets continue to struggle in the economic climate as the industry moves online. This will likely affect jobs in the retail sector in due course and could spike unemployment levels should the sector struggle to cope with the fall in demand.

UK Holidaymakers in Spain to Face 2-week Quarantine Again

After the government lifted the fortnight isolation period for UK holidaymakers after returning from Spain last month, the measures have been re-imposed to reduce any possibility of the R rate climbing again and eliminate any further spikes in cases as was witnessed in Blackpool and Leicester. Whilst this could continue to prevent people from relaxing on holiday in these very trying times, this has the ability to severely influence the travel and hospitality sector for Spain which relies on the UK to seek “bucket and spade” holidays. It is still too early to say the full extent to how this could effect the Spanish economy and thus the euro strength as companies like RyanAir have flouted these measures and still continue to fly to and from Spain in spite of the risks involved.