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Euro Benefits as Confidence in Eurozone Economy Remains High

Last week’s high: €1.1466

Last week’s low: €1.1326

Strong Eurozone Data Continues to Support EUR Exchange Rates

Investors were encouraged to find that the Eurozone consumer price index was stronger than forecast in January, despite a slight dip on the year.

This helped to fuel hopes that the European Central Bank (ECB) will return to a monetary tightening bias in the coming months, putting an end to the long-running quantitative easing program.

January’s finalised raft of Eurozone manufacturing PMIs offered further support to EUR exchange rates on Thursday, with business confidence rising to a record high.

Strong showings from the Netherlands, Italy and Greece indicated that the economic improvement is not just confined to states such as France and Germany.

Although the US Dollar saw a resurgence ahead of the weekend, spurred by better-than-expected wage growth, this failed to particularly weigh on the Euro.

Underwhelming UK manufacturing and construction PMIs added to the bearishness of the GBP/EUR exchange rate, meanwhile.

Euro Outlook: Narrowed German Trade Surplus May Limit Euro Upside

German data will be in focus over the coming days, offering EUR exchange rates further support if the Eurozone’s powerhouse economy continues to impress.

While forecasts point towards a slight narrowing of the German trade surplus in December this is unlikely to be enough to significantly dent the Euro.

However, a sharp fall in exports could give markets and ECB policymakers some cause for caution.

The finalised raft of Eurozone services PMIs could also lend the Euro an additional boost in confidence, although no change is forecast from the provisional figures.

Even so, the key source of volatility for the GBP/EUR exchange rate in the coming week will be Thursday’s Bank of England (BoE) interest rate decision.

If policymakers sound a more hawkish tone on interest rates this could see the Pound surging higher across the board.

Key Events

5th February

09:00   Eurozone Services PMI

09:30   UK Services PMI

10:00   Eurozone Retail Sales

6th February

09:10   German Retail PMI

7th February

07:00   German Industrial Production

8th February

07:00   German Trade Balance

12:00   Bank of England Rate Decision

 

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To keep up to date with the Euro, visit the Euro blog in our Currency News section.

James Baxter 

Currency Dealer

T: (0) 1442 892 062

 

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