Pound Euro (GBP/EUR) exchange rate hits three-week high despite rebound in German factories

Pound Euro (GBP/EUR) exchange rate firms amid cheery trade

The Pound Euro (GBP/EUR) exchange rate is firming this morning despite upbeat German data releases, as an increasing appetite for risk stymies the common currency.

At the time of writing the GBP/EUR exchange rate is trading at around €1.11732, up approximately 0.3% from this morning’s opening rate.

Euro (EUR) unclear despite industrial output rebound

The Euro (EUR) is mixed this morning despite the latest economic data reporting growth in German industry.

Industrial production rose more than expected, by 1% in January, surpassing forecasts of a 0.6% increase.

Economists appeared optimistic about the unexpected rebound, which comes off the back of a surge in German exports this week, indicating that economic conditions in the Eurozone’s largest economy are finally improving.

Carsten Brzeski, economist at ING, said:

‘What we take from the first batch of hard data for the German economy in 2024 is the picture of an economy that is bottoming out but still stuck between cyclical and structural weakness.’

While this served to raise hopes that last year’s prolonged manufacturing recession in the Eurozone may be nearing its end, EUR’s upside potential is seemingly capped this morning in the wake of the European Central Bank’s (ECB) dovish pivot yesterday.

ECB President Christine Lagarde indicated that monetary loosening could occur as early as June, with renewed interest rate cut bets weighing on the common currency this morning.

Pound (GBP) mixed amid lack of data

The Pound (GBP) is trading in a wide range against its peers this morning amid an ongoing lull in UK data.

The increasingly risk-sensitive Pound finds success against its risk-averse rivals amid an improving market mood, while slumping against its riskier peers.

Elsewhere, conflicting responses to this week’s Spring Budget announcement continue to muddy the waters surrounding GBP exchange rates.

UK Chancellor Jeremy Hunt unveiled the Treasury’s latest fiscal plans mid-week, inciting mixed outlooks from investors and economists alike.

Some analysts have asserted that Hunt’s growth-enhancing measures fall short of the economic jumpstart required following a prolonged period of lacklustre growth.

However, others have provided a more optimistic outlook for the trajectory of the UK economy, observing that falling inflation and growing wages will likely see the UK economy amongst some of the fastest growing this year.

Steven Bell, Chief Economist at Columbia Threadneedle:

‘The public will be surprised to hear inflation will be 2 per cent. This is because that is the headline rate, and the fall is mostly the result of the energy price cap falling from £2,500 to £1.500. Wage growth remains strong.’

While British data remains in short supply today, an unclear UK forecast could see Sterling undergo volatile trade as the session continues, while a prevailing spell of cheery trade may keep the Pound afloat.

Pound Euro exchange rate forecast: German inflation in focus

Looking ahead, a data-light end to the week could see the Pound Euro exchange rate trade without a clear trajectory. A shifting market sentiment could imbue the currency pairing with additional volatility, with a cheery mood likely to lift the increasingly risk-sensitive Pound against the safe-haven Euro.

Otherwise, the next key release comes on Tuesday with the release of the German inflation rate. Economists expect to see inflationary warming in February’s data,  which may lead to deferred ECB rate cut bets, lending the common currency some support amid signs of persistent German CPI.

Also due on Tuesday is the UK’s latest jobs data. Unemployment is due to hold steady at 3.8%, with signs of a continually robust UK labour market likely to boost the Pound.

Yasmine Arasteh

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