The GBPEUR exchange rate has retreated from its push towards the 1.1500 level after the European economic data for the data saw an improvement. GDP was slightly better than expected, but the sentiment figures for German and the Eurozone saw large increases.
GBPEUR now trades at 1.1445 with a drop of 0.15% on the day and the pair may settle ahead of the UK inflation figures tomorrow.
EU GDP Shows a Small Beat on Expectations
Fourth quarter GDP for the Eurozone saw a slight improvement with the quarterly number showing a drop of -0.6% compared to the 0.7% expected. The year-on-year estimate was also lower than forecast by 0.1% to -5% for 2020.
The numbers are still weak as the UK was able to muster a 1% growth rate for the quarter and 1.2% in December, so the signs are not great for the euro if the UK does open its economy in March. Britain will see its first taste of post-EU trading when it finally opens and that will play a big part in the GBP to EUR exchange rate outlook for the year.
The Dutch GDP number was released earlier and showed a -0.1% drop for Q4 after expectations for 0.2% growth. The larger economies are leading the way, however, and France’s improved unemployment to 8% was enough to support the single currency.
The real beat was in sentiment index numbers, with the Eurozone seeing a 69.6 reading against expectations for 57, while Germany’s ZEW was 71.2 compared to expectations for 59.6. Traders have been wary of acting on the sentiment figures, but they at least show that businesses and consumers are upbeat for the year ahead.
Whether that positivity feeds into real growth in GDP will remain to be seen but the numbers were enough to see profit-taking in the pound sterling after another solid week.
Market May Consolidate Into Inflation
Tomorrow sees the latest UK inflation numbers and the GBPEUR is likely to settle ahead of that number.
Markets are expecting prices to decrease by 0.1% in the inflation rate and core number. Higher oil prices have been feeding into the latter with crude at $60 and Brent trading above $63.
The current lockdowns may have kept prices in check, but traders will be on alert for a higher number. That could signal a shorter path to tightening rates than is currently priced in.
The GBP to EUR exchange rate will use the inflation figures to guide the rest of the week and could see a move back towards the resistance levels. Boris Johnson’s statement last night also poured cold water on the path to reopening and the market may wait for Monday’s official announcement of the “roadmap” before adjusting their rate outlook.
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