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German Coalition Breakthrough Failed to Prevent GBP/EUR Rally

Last week’s high: €1.1350

Last week’s low: €1.1206

Hawkish ECB and German Coalition Deal Boosted Euro Exchange Rates

Eurozone data continued to impress over the course of the last week, limiting the downside potential of the Euro.

As the German trade surplus widened further than forecast in November and the annual gross domestic product figure for 2017 proved strong this encouraged confidence in the Eurozone’s powerhouse economy.

Unexpectedly hawkish European Central Bank (ECB) meeting minutes added to the optimistic mood of EUR exchange rates, with policymakers shifting towards a monetary tightening bias.

The GBP/EUR exchange rate came under increased pressure ahead of the weekend as Angela Merkel’s CDU and the Social Democrats announced the formation of a new ‘grand coalition’.

This removed a sense of uncertainty from the Eurozone political stage, encouraging investors to pile back into the single currency.

However, the Euro failed to hold onto its gains against the Pound for long as reports emerged suggesting that the Spanish and Dutch finance ministers are prepared to push for a soft Brexit.

Euro Outlook: Widening Eurozone Trade Surplus to Boost Confidence

Demand for the Euro could pick back up today if the Eurozone trade balance shows a widened surplus.

Continued signs of strength from the Eurozone economy are likely to keep EUR exchange rates from seeing particular losses at this juncture.

The finalised German and Eurozone consumer price index data for December could provoke further volatility for the single currency, although no changes are expected from the provisional figures.

Any surprise revisions, though, could influence bets over the prospect of the ECB winding down its quantitative easing program sooner rather than later.

The GBP/EUR exchange rate may also return to a downtrend if the UK consumer price index shows an easing in domestic inflationary pressure.

Key Events

15th January

10:00   Eurozone Trade Balance

16th January

07:00   German Consumer Price Index

09:30   UK Consumer Price Index

17th January

10:00   Eurozone Consumer Price Index

 

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David Worthington

Currency Dealer

01442 892 079

 

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