- Pound (GBP) is falling after a flat finish last week
- UK business and consumer confidence rises
- Euro (EUR) is higher despite unimpressive data
- German business sentiment was unchanged
The Pound-Euro (GBP/EUR) exchange rate is falling after a flat finish last week. The pair fell -0.02% in the previous week, settling on Friday at €1.1536. It traded between €1.1433 and €1.1551. At 15:30 UTC on Monday, GBP/EUR trades -0.09% lower at €1.1525.
The pound is starting the week under pressure despite rising consumer inflation expectations and signs of recovery in UK business and consumer activity.
The UK economy is showing some modest signs of picking up following the finance minister Rachel Reeves’ Budget statement in late November.
Surveys last week indicated that businesses saw their best month in January since July 2024, and consumer confidence also reached its highest level since August 2024. Retail sales volumes rose in December at the fastest pace since April, adding to the good news.
However, the labour market remains weak, as firms continue to scale back hiring following the increase in employer tax burden introduced by Reeves last year.
Attention is now turning towards the Bank of England rate decision on February 5th, where the central bank is expected to leave rates unchanged 3.75%. The market is pricing in another 25 basis point rate cut in April
The euro is rising despite uninspiring German business sentiment data.
The latest Ifo business sentiment survey was unchanged in January at 87.6. While the current assessment improved expectations, it weakened. However, it’s worth noting that it’s unclear whether the survey responses were before or after President Trump’s decision not to impose further tariffs on several European countries, including Germany.
The data so suggests that the German economy is unlikely to have a stellar rebound anytime soon.
Looking ahead, this week also sees the release of eurozone GDP data and German CPI inflation figures. These come as the ECB is widely expected to keep interest rates unchanged at 2% for the rest of the year.
