GBP EUR Higher as German Economy Loses Momentum

GBP EUR Higher as German Inflation Hits 5%

The GBP EUR exchange rate was higher by 0.30% on Monday after the latest German IFO data showed a sluggish economy. Analysts said that supply chain issues continue to blight Europe’s largest economy. UK virus cases were also predicted to fall next with, or without, the so-called plan B.

The GBP to EUR was trading above 1.1850 as we await Rishi Sunak’s Autumn budget on Wednesday.

German IFO shows sluggish momentum in businesses

The latest German IFO business climate survey has shown a continued sluggishness in momentum for Europe’s largest economy.

Following the release of the German IFO Business Survey, Economist Klaus Wohlrabe of the IFO institute said that “supply chain problems are causing trouble for companies, production capacities are falling.”

The survey showed that sentiment in the manufacturing sector has fallen, alongside that of services and trade.

Wohlrabe said that the German economy is facing “an uncomfortable autumn” and that problems in industry are still prevalent with procurement issues and slower capacity.

Germany’s auto sector was one of the worst hit and that is the most important sector for the country.

Chris Williamson of HIS Markit also talked of a European slowdown on CNBC and said that supply chain problems had not yet peaked, with the analyst pointing to Asian data as a leader of the situation.

UK virus cases could fall to 5,000 around Christmas

The latest modelling seen by UK ministers suggests that coronavirus infections will fall next month even without the Plan B restrictions being introduced.

Projections from several groups have said that cases should be dropping rapidly within weeks, with experts reportedly indicating they could plunge to around 5,000 a day before Christmas.

The Daily Telegraph reported that a model from the London School of Hygiene and Tropical Medicine (LSHTM) said infections will soon peak before declining sharply in the winter.

Professor John Edmunds, from LSHTM and a member of the Scientific Advisory Group for Emergencies (SAGE), said the model was projecting that cases “would start to decline sometime in the autumn”.

“However, the model also suggests that cases may start to climb again in the spring due to a combination of waning immunity and increased contacts,” he said

The news is a boost for the pound sterling which was at risk of seeing rate rise bullish price action derailed. The modelling also contradicts the calls from Labour and the Liberal Democrats for Plan B restrictions to be introduced, including mandatory mask wearing, vaccine passports and working from home.

Rishi Sunak has said that the current situation does not warrant the plan B operation. The UK has reportedly administered over 6 million booster jabs to citizens.

Wednesday will see the latest GfK consumer confidence data for Germany alongside the chancellor’s Autumn budget for the UK. Pound traders will be looking for further business support in light of the economic rebound losing some of its steam recently, while measures to tackle energy prices and inflation will also be needed.

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