- Pound (GBP) is inching higher and rising across the week
- Sterling gains could be limited going forward
- Euro (EUR) is lower after German inflation fell to 2%
- The ECB is not expected to cut rates again
The Pound-Euro (GBP/EUR) exchange rate is rising after losses yesterday. The pair fell -0.13% in the previous session, settling on Thursday at €1.1529. It traded between €1.1522 and €1.1546. At 15:30 UTC on Friday GBP/EUR trades 0.10% lower at €1.1535.
The pound is rising and is on track to book gains across the week, marking the 5th consecutive weekly rise, even though the outlook for sterling could be deteriorating.
This week, UK GDP data showed that the UK quantum E grew at a faster clip than expected at 0.3% month on month in November. However, a large portion of this growth was due to one-off factors linked to Jaguar Land Rover, raising questions about the strength of underlying growth in the UK economy.
Attention is now turning to UK inflation and unemployment data next week. Signs that inflation is cooling faster than expected, while unemployment continues to rise, could prompt the Bank of England to cut interest rates more aggressively. This would be bearish for the pound.
The EUR is moving lower, but losses could be limited given that the European Central Bank is not expected to be cutting interest rates again anytime soon.
German inflation data today confirmed that consumer prices cooled to 2% year on year in December, down from 2.6% previously and in line with the preliminary reading.
With inflation in the eurozone’s largest economy at 2%, which is the ECB’s target level, the central bank has little reason to be moving on rates again soon.
Looking ahead to next week, attention will be on ZEW economic sentiment figures, Eurozone final CPI data, and PMI figures. PMI figures give investors a more timely insight into the health of the economy than GDP data.
