• Pound (GBP) edges cautiously higher ahead of GDP data
  • Expectations are for -1.7% contraction QoQ
  • Euro (EUR) supported by upbeat German ZEW economic sentiment numbers
  • German CPI & Eurozone industrial production data in focus

The Pound Euro (GBP/EUR) exchange rate is edging cautiously higher on Wednesday. The pair traded flat in the previous session, settling at €1.1640, the same level that it had started the day. This came following a 1.3% surge on Monday.  05:45 UTC, GBP/EUR trades +0.05% at €1.1644.

The Pound consolidated gains on Tuesday, pausing for breath after the surge higher at the start of the week. Re-opening optimism in addition to local election results which supported political stability helped to boost Sterling on Monday.

Today the Pound is trading cautiously higher as it looks ahead to the release of first quarter GDP data. Analysts are expecting the UK economy to contract -1.7% in the first three months of the year due to lockdown and Brexit. This would be significantly better than the -4% that the BoE had originally pencilled in.

Breaking the data down further, the March month on month GDP reading is expected to show a 1.3% expansion following a 0.4% expansion in February. This would suggest that the economy is on the right path to recovery. A strong reading could lift the Pound.

The Euro was supported by better than expected German economic sentiment data. The closely watched ZEW report showed that investor sentiment surged higher in May to 84, up from 70.7 in April and ahead of the 71 forecast. This was also the highest level reached since February 2000.

The improved outlook came as the third wave of covid eased in Germany and as the vaccine programme in the country picked up.

Attention will now turn to German inflation numbers for April. These are expected to confirm the preliminary reading of 0.7% month on month rise and a 2% year on year gain.

Eurozone industrial production could also offer support to the Euro. Analysts are expected to see a solid 0.7% month on month build in output in March. Meanwhile an 11.7% annual jump is expected in industrial output. The number is elevated because 12 months ago everything came to a halt with the first wave of covid.