Sliding German Business Sentiment Offers Pound Sterling Euro (GBP/EUR) Exchange Rate Boost
A weaker-than-expected German IFO business sentiment survey encouraged the Pound Sterling to Euro (GBP/EUR) exchange rate to recover some of its lost ground this morning.
Both the business climate and expectations indexes showed a surprise deterioration on the month in January, demonstrating a fresh weakening of sentiment within the Eurozone’s powerhouse economy.
This added to existing worries over the health of the German economy, given the lingering impact of global trade tensions and the threat of fresh US tariffs.
With markets still seeing a risk of Germany experiencing a fresh growth contraction in the first quarter support for the Euro (EUR) naturally weakened.
Brexit Uncertainty Fails to Drag on Pound Sterling Today
While some jitters over Brexit and the next round of UK-EU negotiations remained this was not enough to weigh Pound Sterling (GBP) down at the start of the week.
Although it remains to be seen whether the two sides can reach a fresh trade deal before the end of the year, avoiding a hard Brexit scenario, GBP exchange rates still recovered some ground today.
Greater support could be in store for the Pound on the back of Tuesday’s CBI distributive trades index, with forecasts pointing towards a modest uptick on the month.
As long as the index bounces back from the stagnation seen in December this should encourage optimism in the UK’s economic outlook, buoying the GBP/EUR exchange rate.
Pressure in Store for GBP/EUR Exchange Rate Ahead of BoE Policy Decision
As markets brace for Thursday’s Bank of England (BoE) policy announcement, though, the GBP/EUR exchange rate is likely to experience greater volatility.
With high odds of an imminent interest rate cut already priced into the Pound the potential for further losses in the wake of the decision appears limited.
Even so, if the BoE opts to cut interest rates and signals the potential for further policy easing down the line this could weigh heavily on the Pound.
On the other hand, GBP exchange rates could return to a stronger footing if policymakers ultimately vote to leave rates on hold for another month.
The latest quarterly inflation report may also put a dampener on the Pound, though, as confidence in the economic outlook of the UK already looks limited.
Rising German Inflation to Offer Euro Exchange Rate Boost
Demand for the Euro could pick up on Thursday, meanwhile, as long as January’s German consumer price index strengthens as forecast.
Markets expect to see the headline inflation rate pick up from 1.5% to 1.7% on the year, moving closer to the European Central Bank’s (ECB) 2% target.
However, as forecasts also suggest a deterioration in the monthly inflation reading EUR exchange rates may struggle to capitalise on the data.
With the ECB looking unlikely to return to a monetary tightening bias before the end of the year even a strong uptick in German inflation could offer little encouragement for the single currency.