GBP/EUR: Euro Jumps vs. Pound As German Coalition Averts Collapse
  • Pound (GBP) holds steady ahead of a key week
  • BoE rate decision will be announced on Thursday
  • Euro (EUR) looks to German GDP data
  • Eurozone consumer confidence is also awaited

The Pound Euro (GBP/EUR) exchange rate is holding steady after very modest losses last week. The pair fell 0.09% in the previous week, settling on Friday at €1.1404, after trading in a range between €1.1295 – €1.1424. At 05:45 UTC, GBP/EUR trades +0.02% at €1.1406.

The pound struggled to gain ground last week as Brexit worries and political jitters resurfaced, hurting demand. While there are reports of a shared determination between the UK and Ireland to agree on a post-Brexit trading agreement, progress is slow. Separately treasury secretary Jeremy Hunt has downplayed the likelihood of big tax cuts in his budget.

Looking ahead across this week, all eyes will be on the Bank of England monetary policy decision on Thursday when the central bank is expected to deliver 50 basis point rate hike. This would mark the tenth straight interest rate increase as the central bank fights double-digit inflation. In addition to the interest rate decision, PMI data is also set to be released later in the week.

The euro also struggled at the end of last week, despite hawkish commentary from several European central bank policymakers including Klaas Knot and Peter Kazimir, who said that they are in favour of two more 50 basis point rate hikes in February and March. ECB president Christine Lagarde also reiterated support for raising interest rates further.

Today attention will be on fourth-quarter GDP data from Germany, which is expected to show that the economy stagnated at 0% quarter on quarter. The data comes amid growing speculation over whether the German economy will manage to avoid a recession or not.

Previously expectations had been for the German economy to enter a recession in the first quarter of 2023. However, with inflation cooling, an energy crunch avoided and data coming in better than expected, there is growing optimism that Germany could escape a recession.

German economy minister Robert Habeck set a depressed conference in Berlin that “we now expect a recession to be shorter and milder if it happens at all.”

Eurozone consumer confidence is also due to be released and is expected to improve -20.9, up from -22.