The GBP EUR exchange rate was 0.34% higher on Tuesday after German data pointed to a potential recession. An IFO survey mirrored weak PMI numbers, with Russian gas set to be the defining moment for the European economy. The pound sterling was higher for a third-straight day. Rishi Sunak and Liz Truss continued their leadership battle with a televised debate.
The GBP to EUR trades at 1.1825 ahead of German consumer confidence on Wednesday.
Business climate struggles in Germany highlight recession risk
The German IFO business climate survey was lower than expected this week as managers fear the outlook for the year’s second half.
The Ifo institute’s index dropped to 88.6, the lowest level in over two years. This figure was below the 90.2 expected by analysts. The June number was also revised down to 92.2.
With recession at the metaphorical doorstep, it cannot be ruled out any longer said Ifo surveys head Klaus Wohlrabe.
Germany also faces the problem of gas this winter as Russian supply remains a crucial factor for the European economy. Wohlrabe added that if Germany’s supply remained at current levels, “there will be no recession.”
Nonetheless, the country’s gas network regulator said that Europe’s biggest economy would need further measures to obtain the 90% storage capacity target to avoid winter rationing if it continues with its current 40% supply.
According to Ifo business climax index, similar to the purchasing managers’ index, now indicates a downturn in the German economy.
Tomorrow will bring further data from Germany with consumer confidence released. The same data will be released for France and Italy but is unlikely to shift the pair materially. The more critical release will be Thursday’s German inflation, which adds extra weight to the ECB plans for rate rises. The bank said that data would guide them on further rate hikes after last week saw the first in 11 years.
Sunak and Truss continue to battle it out for leadership
Rishi Sunak and Liz Truss continued the hostilities in the first televised debate for the UK leadership.
Sunak, who stepped down as Chancellor earlier this month, said that Truss’s planned tax cuts would push inflation. It would also increase interest rates, adding thousands of pounds to mortgage payments and tipping millions of people into despair. Truss retaliated, stating that Sunak would send the economy towards recession.
Sunak trailed Truss by 24 points among grassroots Conservatives in a YouGov poll last Thursday. It will be 175,000 members of the Conservative party that choose the next leader.
Sunak stands on a platform of responsible fiscal leadership as he previously wrestled with the country’s finances during his tenure. He said Truss’s plan was a “short-term sugar rush of unfunded tax cuts followed by the crash of higher prices and higher mortgage rates.”
The other big news for the euro this week was the expectation that Russian gas would come back online after Russia’s maintenance.