Plummeting car production was one of the major drivers of the unexpected slide in Germany’s industrial production.
Commenting on this morning’s data release, Mizuho Rates Strategist Antoine Bouvet said:
“We have had a lot of sentiment indicators pointing to this, but industrial production is hard data and it is really cementing the impression that the European economy is slowing down.
“It is lending credibility to the view that the slowdown is not temporary, and the [European Central Bank]’s decisions last week amounted basically to preventative action.”
Also driving the GBP/EUR pairing is Brexit, as the UK is only 18 days away from its expected departure from the European Union.
With discussions between the UK and EU seemingly having reached a stalemate, markets are assessing the risks of a no-deal Brexit.
Commenting on the discussions, an unnamed EU official told Reuters:
“May has boxed herself even deeper into a corner, it seems the second meaningful vote will go ahead on Tuesday but it also seems like it won’t be the last meaningful vote on this.
“We really want to be over with it now. It’s not going anywhere so even an extension is unlikely to break the impasse. There is not much patience or goodwill left on our side.”
This dampened sentiment for Sterling, causing the GBP/EUR pairing to fall this morning.
Looking ahead to this afternoon, the pound could slide following a speech from the Bank of England’s Jonathan Haskel.
If Mr Haskel’s tone is sufficiently pessimistic about the post-Brexit economy then sentiment in Sterling could be further hit.
Tomorrow morning could also see the pairing slip following the release of the UK’s manufacturing production figure, with yearly production forecast to have slid in January.
In the meantime, traders are fully focused on Tuesday evening when the second meaningful vote on Brexit will take place, and if Theresa May’s deal is rejected by MPs, it could see the pound plummet against the euro.