The British pound is up against the euro on Tuesday afternoon after data showed German GDP rose in line with previous estimates in the fourth quarter and the European Union published its mandate for the upcoming trade talks with the UK.
GBP/EUR was higher by 56 pips (+0.47%) at 1.1957 with a daily price range of 1.19 to 1.198 as of 1pm GMT.
GBP/EUR rallied in early European trading hours before settling back at 1.195. The day’s gains leave the exchange rate flat on the week at -0.02%.
GBP/EUR: Rising number of cases of COVID-19 in Europe has pressured the euro
A rising number of cases of the COVID-19 coronavirus in Italy and other parts of Europe has pressured the euro when other riskier currencies were seeing some relief. The German 10-year yield has fallen to its lowest level since October as European investors continue to invest in government bonds as a haven. The lower yields available in Europe make the euro relatively less attractive than the pound and other higher yielding currencies.
The final reading for German GDP came in line with previous estimates of 0% quarter-over-quarter and 0.3% year-over-year. Survey estimates from purchasing managers shot higher in February in a sign that the first quarter could see Germany return to growth. However the disruption from the coronavirus could see that all reverse again in March, risking another disappointing quarter for the German economy.
The pound
Gains for the pound on Tuesday were mostly a function of unwinding extreme positions from Monday’s market sell-off. Stock markets, oil and risky currency bounced off their lows while gold, government bonds and haven currencies were off the highs made yesterday.
The publishing of the EU’s Brexit mandate was more a matter for political nerds than market analysts. The guiding principle was that the EU is seeking level playing field arrangements that keep the UK tied into the bloc’s regulations in exchange for smooth access to EU markets. We can expect the opposite viewpoint when the UK releases its own mandate on Thursday, whereby the focus will be not accepting EU rules as a matter of sovereignty.