The Pound Euro exchange rate opens the new year on strong footing, with the pairing appreciating around half a cent.
Euro slides despite strong inflation figures
The Pound Euro exchange rate was mostly rangebound at the start of this week. Sterling struggled to find support in response to a downwardly revised UK manufacturing PMI. While the euro was undermined by its strong negative correlation with the US Dollar.
GBP/EUR then surged in mid-week trade. A rise in German unemployment appeared to sink the Euro on Wednesday. Allowing the Pound to rally on reports of strong UK consumer spending over the Christmas period.
The euro then began to find its feet again in the second half of the week after Germany reported domestic inflation accelerated in December for the first time in seven months. Undermined European Central Bank (ECB) interest rate cut expectations.
However, Thursday’s pullback in GBP/EUR proved very modest as the Pound was simultaneously supported by the UK’s latest services PMI. December’s stronger-than-expected finalised figures helped to boost hopes the UK may narrowly avoid a recession.
The end of the week then saw the Euro fluctuate as the latest Eurozone consumer price index reported inflation in the bloc rose last month. But at a slower pace than expected.
Rebound in UK GDP to lift Sterling?
Turning to next week, the main catalyst of movement in the Pound Euro exchange rate is likely to be the publication of the UK’s latest GDP data.
November’s monthly GDP figures are forecast to report the UK economy returned to growth, with a modest 0.1% expansion.
Will this be enough to ease UK recession fears and lift Sterling at the end of next week?
In the meantime, in the absence of any other notable data, movement in the increasingly risk-sensitive Pound may be tied to market risk dynamics. Could a cautious mood limit GBP demand?
For EUR investors the focus is likely to be on Germany’s latest industrial data. An expected recovery in factory orders and industrial production in November may reflect positively on the Euro at the start of the week as this may boost hopes that the Eurozone’s largest economy could also avoid slipping into a recession.
Elsewhere, the Euro’s negative correlation with the US Dollar may also play a key role in influencing the direction of EUR exchange rates next week. Another slowdown in US inflation may trigger a USD selloff, which in turn may bolster the single currency.
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