GBP/EUR: Euro Jumps vs. Pound As German Coalition Averts Collapse

The euro remains under pressure near 34-month lows following a stagnation in the German economy. The euro US dollar exchange rate skidded lower in the previous session, striking a nadir of US$1.0835, before closing just a few points off the low. Broad dollar strength and concerns over the health of the German economy weigh on the pair.

Euro

The euro continues to hover at multi year lows after the latest data from Germany revealed that the German economy stagnated at the end of 2019, leaving it in a vulnerable state even before the coronavirus threat emerged.  The manufacturing sector continues to be the weakest link after a year of dealing with the impact of Brexit uncertainty and the US – China trade dispute continues to be felt. It wasn’t all bad news, on the bright side, the German economy has avoided a contraction in the fourth quarter, which some had feared.

However, the outlook for 2020 is not showing signs of improving. The GDP data follows on from recent weak macro stats from Europe’s largest economy. With industrial production and factory orders still declining and the impact of coronavirus still unknown there is a good chance that the German economy could see data deteriorate before it starts to improve.

US dollar

Today dollar investors are looking ahead to the release of several high impacting data points. These include retail sales, industrial production and consumer confidence.

Recent data has shown the US economy to be on a solid footing and the Federal Reserve Chair Jerome Powell said he considers monetary policy appropriate.

Yesterday, US inflation data revealed that consumer prices increased by 0.1% in January compared to a month earlier. This was the weakest level of growth for 4 months and was also below analysts’ forecasts. However, on an annual basis inflation increased 2.5%, up from 2.3% and above the Federal Reserve’s 2% target.

Still with the Fed’s preferred measure of inflation, the PCE only increasing 1.6% annually, the central bank is in no rush to move on rates. Furthermore, the Fed will be unwilling to adjust policy until they can assess the economic impact caused by coronavirus, now renamed COVID-19.


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