- Pound (GBP) rose last week after upbeat data
- BoE speakers are in focus
- Euro (EUR) is unchanged vs GBP but rises vs USD
- Conservatives win German election
The Pound Euro (GBP/EUR) exchange is unchanged on Monday after gains last week. The pair rose 0.7% in the previous week, settling on Friday at €1.2075. It traded in a range between €1.1989 and €1.2102. At 11:30 UTC, GBP/EUR is flat at 0% at €1.2075.
The pound rose last week and continues to find support at the start of the new week, following stronger-than-expected UK retail sales on Friday and upbeat services PMI data.
UK retail sales rose 1.7% month on month in January after a not quickly revised -0.6% fall in December. Meanwhile, the services PMI unexpectedly rose to 51.1, marking an a 2 month peak in activity and the dominant sector.
Today, the UK economic calendar is quiet. Attention will be on Bank of England speakers, including deputy governor Claire Lombardelli, David Ramsden, and Swati Dhingra. The market will listen to the comments closely after the central bank cut interest rates by 25 basis points in the February meeting.
The EUR also shows equal strength as the market cheers the German election result. The conservative (CDU) won 29% of the votes, with Friedrich Merz set to become the new chancellor. He will now look to form a coalition, most likely with the SPU. This coalition is unlikely to deliver significantly more for the German economy than a short-lived positive impact of some tax cuts and some small reforms.
The election comes as the German economy still struggles following two years of contraction.
Data today highlighted the weakness in Germany. The Ifo business climate index came in below expectations of 85.8, just 85.2, in February, giving the new government a difficult hand.
The new government will need to take swift action to stimulate the economy, and for this, rapid coalition negotiations will be necessary.
However, improvement in the economy can only be expected in the second half of this year at best. Should Germany see a third year of contraction in 2025, this would mark the longest period of weakness in the country’s post-war history.
