GBP EUR Weaker After Macron Election Win

GBP EUR After German Inflation Data Soars

The GBP EUR exchange rate was lower on Monday after the French election ended with a Macron win. Germany also saw the release of a higher-than-expected business sentiment index number. The pound has government borrowing figures released on Tuesday. UK manufacturing was seen being pressured by supply chains and rising inflation.

The GBP to EUR opened the week trading at 1.1858 after election-driven results last week.

German economy shows some resilience despite war

Germany’s economy appeared more resilient after the first shocks of war in Ukraine, said Ifo economist Klaus Wohlrabe, who said there was no sign of a recession in the first half.

The German Ifo Business Climate index came in better-than-expected at 91.8 after analysts had expected a reading of 89.1.

“Conditions in services sector have improved significantly,” Wohlrabe said.

The euro was boosted by the win of Emmanuel Macron in the French election on Sunday. Macron was said to have won with 58% of the vote in the second round of voting.

Macron became the first French President in twenty years to win a second term, but the win led to protests amongst some citizens. Traders feared a Le Pen win would add instability to the euro and the pound is on the backfoot to start the week with little data ahead.

The Macron win will also have implications for the GBP v EUR as tensions are likely to remain over migration and fishing rights. In a congratulatory tweet, Boris Johnson described France as one of the UK’s ‘best and closest allies’.

UK Manufacturing sector hit by supply side crunch

Confidence amongst UK manufacturers has dropped at the fastest rate since the first lockdowns, as the Ukraine war and inflation bite.

Business sentiment and export optimism both fell in April, at their fastest rates since April 2020, as economic uncertainty and commodity prices jumped.

The balance between UK factories who were more upbeat about their business situation, rather than pessimistic, slumped to -34% in April from -9% in January, according to the CBI’s first quarterly Industrial Trends Survey since Russia’s invasion of Ukraine.

That marks the biggest drop in confidence since April of 2020, in the first wave of the pandemic.

Companies also reported that new orders slowed over the last quarter, and they expect them to keep falling in the next quarter- another sign that the economy is slowing.

Cost pressures remained high for businesses, with average costs growing at the fastest rate since July 1975. Firms also hiked prices domestically at the fastest pace since October 1979, which will again feed through to consumers with higher prices in stores.

The cost of raw materials was the biggest driver of cost growth expectations in the next three months (80% of respondents said this was extremely important), followed by energy costs (59%), transport costs (41%) and labour costs (38%).

The Bank of England will meet in around 10 days’ time and may take steps to tackle inflation after hawkish plans from the US Federal Reserve.