GBP/EUR: Brexit Extension & EU Trade Tariffs In Focus
  • Pound (GBP) falls in risk off trade
  • There is no data due today but is a busy week for data
  • Euro (EUR) fell last week on USD strength
  • ECB Christine Lagarde in focus

The Pound Euro (GBP/EUR) exchange rate is heading lower at the start of the week after strong gains last week. The pound rose 1.08% against the euro in the previous week, settling at €1.1944 towards the weekly high of €1.1964. At 05:45 UTC, GBP/EUR trades -0.07% at €1.1935

The Pound rose on Friday after UK data revealed that the Omicron hit to the UK economy in December was less than forecast. Expectation had been for UK GDP to contract by -0.5% in December, instead the economy contracted -0.2% as Omicron spread quickly. On quarterly basis the economy grew 1% in the final three months of 2021, only slightly before the 1.1% forecast, which was the same level of growth recorded in the third quarter.

Today attention will be on the worsening Russia – Ukraine situation, after Russia amasses 130,000 troops ion the Ukraine boarder but still says its not going to invade. Meanwhile, US intelligence says that Russia will invade this week. In this case, the pound could lose ground as risk appetite declines and investors look towards safer havens.

There is no high impacting UK data due to be released today. However, there is plenty of data this week, including unemployment figures, inflation data and UK retail sales numbers.

The Euro fell last week mainly due to the stronger US dollar. The US dollar rallied after US inflation reached a 40 year high of 7.5%, sparking expectations of a more hawkish Fed. The Euro trades inversely to the Euro.

Adding pressure to the euro last week, European Central Bank policy makers sounded more dovish, a week after a more hawkish twist from the ECB.

German inflation came in as expected at 4.9% year on year in January, down from 5.3% in December.

Looking ahead there is no high impacting Eurozone data due to be released today. ECB President Christine Lagarde is due to speak, and her words will be listened to closely. Last week, Lagarde was notably more dovish in her outlook than the week before. Her tone could dictate the direction of the Euro.