Better-Than-Forecast German GDP Dents Pound Euro Exchange Rate
As the fourth quarter German gross domestic product bettered forecasts this left the Pound to Euro (GBP/EUR) exchange rate on the back foot.
Forecasts had pointed towards the quarterly growth rate slumping from 8.5% in the third quarter to 0% in the fourth, representing a significant loss of momentum for the Eurozone’s powerhouse economy.
However, as the GDP reading instead clocked in at 0.1%, avoiding a stagnation, this offered the Euro (EUR) a limited boost against its rivals ahead of the weekend.
While the German economy still saw a major slowdown in the final months of 2020 investors were relieved that it proved a little less sharp than initially thought, keeping a temporary floor under EUR exchange rates.
Slump in German Retail Sales Set to Boost GBP/EUR Exchange Rate
Even so, worries over the health of the German economy could pick back up on Monday with the release of December’s retail sales figures.
Markets expect to see sales plunge -2.3% on the month, in spite of the Christmas period, in reflection of the tightened social restrictions the country saw in December.
Evidence that German consumers engaged in less spending at the end of 2020 could see the single currency coming under a degree of pressure.
On the other hand, confirmation that the Eurozone manufacturing PMI’s remained in a solid state of growth in January could help to limit any potential Euro weakness in the short term.
Pound Volatility Forecast on UK Manufacturing PMI and Mortgage Data
Support for Pound Sterling (GBP), meanwhile, may weaken in response to the finalised UK manufacturing PMI.
As long as the report shows that the sector came under greater pressure at the start of the year, even though it remained in expansion territory, this could weigh on the GBP/EUR exchange rate.
Greater volatility could also be in store for the Pound on the back of December’s UK mortgage approvals and mortgage lending figures.
If signs point towards an increasing sense of caution among both lenders and households this may put a fresh dampener on GBP exchange rates, given the significant role that consumer sentiment has previously played in shoring up the economy.
Negative Eurozone Growth Rate Set to Drag Euro Lower
The GBP/EUR exchange rate may well find a rallying point on Tuesday, though, with the release of the fourth quarter Eurozone gross domestic product report.
Unlike the German growth data, forecasts point towards the GDP contracting on the quarter in the face of tightened social restrictions across the currency union.
If the Eurozone falls into negative growth territory in the fourth quarter this would raise the risk of the bloc entering a double-dip recession.
As long as markets see greater reason to doubt the prospect of the Eurozone recovering from the impact of the Covid-19 crisis in the near future the appeal of the Euro looks set to sour, to the benefit of the GBP/EUR exchange rate.