GBPEUR Flat with German GDP Drop, UK Borrowing Lower

GBPEUR Trades at Three-Month Highs After German Data

The GBPEUR exchange rate was unchanged on Tuesday after the latest growth figures from Germany showed a larger than expected drop in GDP. Europe’s largest economy shrank by 1.8% quarter on quarter and by 3.1% on the year, the Federal Statistics Office said.

The GBP to EUR trades at 1.1587 as traders can’t make their mind up on the current level. Germany will also see IFO business sentiment this morning.

German GDP disappoints

A recent bounce in activity and data gave investors hope that the latest German GDP would be boosted, but the market has seen a slight drop.

The German economy shrank by 1.8% quarter on quarter and 3.1% for the year, according to the Federal Statistics Office. The numbers were expected to be -1.7% and -3% and are weaker than the average eurozone reading. It’s another sign that investors seem to give the single currency a pass.

German households’ saw a slight increase in disposable income as the government ploughed billions of euros into furlough, restrictions also made it harder for consumers to spend it.

“The drop in consumption is colossal,” VP Bank Group economist Thomas Gitzel said.

German household spending fell 5.4% for the latest the quarter, but the savings rate rose to a record high above 23.2%. The economy is starting to open further now and should see a continued boost for the GDP numbers in Q2 onwards.

Traders will now wait for the German IFO number which will give an update on business sentiment for entrepreneurs in the country.

UK borrowing drops in April

April’s UK public borrowing figures showed that the government’s financial position isn’t as bad as the Office for Budget Responsibility (OBR) predicted at the time of the budget.

The latest numbers also mean that tax hikes and spending cuts that have been proposed, could be avoided, if stronger growth remains on track with forecasts.

The forecast £90bn worth of COVID-19 government support in the current fiscal year should keep public borrowing higher in 2021/22.

“But we have been saying since the end of last year that rapid economic growth would quickly improve the outlook for the public finances. That means the Chancellor may be spared having to implement his proposed tax hikes/spending cuts before the 2024 general election,” said Capital Economics.

Britain’s borrowing was still at its second highest in any April, with the ballooning cost of tackling the pandemic. Net borrowing was forecast to be £31.7bn, according to figures released by the Office for National Statistics. The number is £15.6bn less than was seen in April 2020, when the country borrowed around £47bn as the pandemic got underway. The borrowing was still nearly double that of the 2008-09 financial crisis.

The GBPEUR has resistance at 1.1600 and the Ifo number will play its part but the pound sterling seems to be running out of steam and needs a fresh catalyst.