Jun 13, 2023

The EURGBP exchange rate is back in focus as German inflation and UK employment are released on Tuesday.

EURGBP – Daily Chart 

EURGBP – Daily Chart

EURGBP has found a cluster of support at the 0.8550-0.8580 range, being base levels in 2022.

German inflation is released on Tuesday, fresh from an April fall to 7.2%. Analysts expect German inflation to fall by over a full percentage point to 6.1% for May. 

Another sharp fall could see a belief that the ECB has done enough and is near the end of its rate hikes. The UK will see the release of its latest unemployment figures with a jump from 3.9% to 4% expected. Despite the increase, 162k jobs are expected to be added for the month. 

ZEW economic sentiment indicators will also be released for the Eurozone and Germany later in the day but are expected to show a drop as economists fear a recession. At the same time, Germany has already reached a recession. 

A recession is an embarrassing turnaround for the former powerhouse of Europe, which has now been labelled the “problem child” of the eurozone. 

“The cause of the misery in euroland is probably linked to the weakness of the German economy,” Sentix said. “The biggest problem child in the eurozone remains Germany”. The economy fell into recession in early 2023, and the Sentix survey of investors in June fell to the lowest since November last year, at minus 21.1, from minus 14.5 the previous month. 

“No matter how hard the German Federal Minister of Economics tries, the story he is writing is not a positive summer fairytale,” the survey said. 

Meanwhile, the CBI has upgraded its outlook for the UK economy alongside the IMF, OECD, and British Chambers of Commerce. The CBI said it no longer expects a mild recession, but inflation is still higher than predicted. 

Alpesh Paleja, the lead economist, said: “Despite a somewhat better growth outlook, this year will be another difficult one for households. Another year of high, albeit falling, inflation will weigh on real incomes and put pressure on the bottom line for consumer-facing companies.” 

The UK Chancellor has ruled out any significant increase in borrowing over the coming years and has promised tighter public spending budgets by historical standards. He also hinted that taxes will fall if public services become more effective. The Chancellor was looking at ways to cut taxes without adding to borrowing.

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