- Weak EU PMI
- Germany GDP Contraction
- K Economy Slowdown
EUR/GBP rally to one month fizzled as the EURO came under pressure on weak EU PMI Data. While PMI data for May improved slightly, it still painted a clear picture of the catastrophic impact of COVID-19. While the easing of restrictions across the block has fueled some optimism, concerns that the economic block is still in contraction continue to weigh in on the EURO currency.
EU Economy Contraction
May PMI data came in at 30.5 a slight improvement after plummeting to 22-year lows of 13.5 in April. As traders reacted to the PMI data, EUR/GBP retracted from one-month highs of 0.9001 as traders continued to question the health of the European economy.
Short selling pressure could surge next week on the release of final Germany GDP data. A confirmation that Germany’s economy sunk into recession could pile more pressure on the Euro against the British Pound. Similarly, the single currency could remain under pressure on data showing that Germany’s business climate is far from recovering from the COVID-19 pandemic.
U.K Economy Slowdown
EUR/GBP drop from one-month highs could, however, receive some reprieve as the British economy is struggling with its fair share of challenges, consequently fueling weakness in the British Pound. The United Kingdom, five year bond, fell below zero for the first time. The drop came as traders reported that Bank of England policymakers are contemplating negative rates in a bid to cushion the struggling economy.
The COVID-19 pandemic has badly hit U.K’s economy. Lockdown imposed to curb the spread of the virus has all but halted economic activities leading to job losses. BOE Governor, Andrew Bailey, has already confirmed they are contemplating negative rates among other measures as the race to support the struggling economy heats up.
Looking ahead, the focus will be on retail sales data that could shed more light on U.K’s consumer spending. A weaker than expected data could lead to weakness in the Pound sending the EUR/GBP pair higher. Likewise, the focus is also on ECB policy meeting accounts that could also influence the strength of EURO strength in the week’s closing.