A softer-than-expected German industrial production figure helped to keep the Pound to Euro exchange rate supported at the start of the week.
Last Week: Pound Lifted as BoE Talks Down Negative Rates
As the Bank of England (BoE) talked down the prospect of negative interest rates at its February policy meeting this encouraged the Pound to trend sharply higher across the board.
With investors moving to price in this more optimistic signal from the central bank the GBP/EUR exchange rate climbed to its highest level since May 2020.
Support for the Euro proved limited, meanwhile, as German factory orders showed a sharper contraction on the month than forecast.
Fresh evidence of the weakening strength of the Eurozone’s powerhouse economy saw the single currency falling out of favour ahead of the weekend, with markets betting on the increased odds of a double-dip recession.
Three Things to Watch out for This Week
- Germany Balance of Trade
Worries over the outlook of the German economy could mount further on the back of December’s set of trade data, with forecasts pointing towards a narrowed surplus.
Any signs that trade conditions weakened at the end of 2020 for the German economy would add to existing fears of an imminent recession, leaving the Euro on the back foot.
2. UK Gross Domestic Product
GBP exchange rates may struggle to hold onto their positive footing over the course of the week as investors brace for the release of the fourth quarter UK gross domestic product report.
If growth contracts on the quarter this could expose the Pound to significant selling pressure as optimism over the relative resilience of the economy weakens.
3. UK Balance of Trade
On the other hand, December’s UK trade balance figure could offer the Pound a leg up if it shows a narrowed deficit as forecast.
Evidence of even a limited improvement in trading conditions may help the Pound to Euro exchange rate push higher, offsetting other lingering worries over the economic outlook.
GBP/EUR Outlook
The latest German and UK trade data could provoke fresh volatility for the Pound to Euro exchange rate, potentially pushing the pairing away from its recent highs.