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Possible Weakness in Store for EUR Exchange Rates on Slower Eurozone GDP

Last week’s high: €1.1441

Last week’s low: €1.1225

German Coalition Breakthrough Offers Limited Boost to Euro

Comments from European Central Bank (ECB) President Mario Draghi put pressure on the Euro at the start of the week, seeming to diminish the prospect of any imminent shift in monetary policy.

However, the mood towards the single currency soon picked back up as Angela Merkel’s CDU/CSU and the SPD announced a breakthrough in coalition talks.

After four months of political limbo this news encouraged investors, even though the deal has yet to be approved by members of the SPD.

With the deal still having the potential to fall through its boost to EUR exchange rates ultimately proved to be short-lived.

A weak raft of Eurozone retail PMIs and a larger-than-expected narrowing of the German trade surplus dented the Euro, especially as the US Dollar was buoyed by global stock market volatility.

However, the GBP/EUR exchange rate came under substantial pressure ahead of the weekend thanks to the latest comments from chief EU negotiator Michel Barnier.

As he cautioned that a transition deal ‘is not a given’ this prompted the Pound to plunge, reversing the gains seen on the back of Thursday’s hawkish Bank of England (BoE) communication.

Euro Outlook: Weaker GDP May Limit EUR Exchange Rate Upside

Confidence in the single currency could well decline further this week in response to the fourth quarter German and Eurozone gross domestic product data.

Forecasts point towards a loss of economic momentum at the end of 2017, something which could give investors fresh incentive to sell out of the Euro.

However, even if growth does slow as expected this would still represent another solid quarter of activity for the currency union.

Anything short of a significant downside surprise is thus unlikely to weigh on EUR exchange rates for long, with the Eurozone still looking set to outpace its rivals.

Further losses could be in store for the GBP/EUR exchange rate, meanwhile, if UK inflation is found to have eased again in January.

As weaker levels of inflationary pressure could dissuade the BoE from raising interest rates again in the near future a dip here may well dent demand for the Pound.

Key Events

13th February

09:30   UK Consumer Price Index

14th February

07:00   German Gross Domestic Product

10:00   Eurozone Gross Domestic Product

15th February

10:00   Eurozone Trade Balance

 

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James Spurway

Currency Dealer

01442 892 070

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