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The Pound Euro (GBP/EUR) exchange rate experienced fluctuations today, driven by concerns over the Eurozone economy following the release of disappointing German GDP data. As of the latest update, the GBP/EUR exchange rate is holding steady at approximately €1.1628, showing little change from the morning’s opening rate.
The Euro (EUR) faced volatility in response to Germany’s GDP figures, which revealed a 0.3% contraction throughout 2023, in line with expectations. This decline signaled a notable downturn from the economic activity witnessed in 2022, reinforcing suspicions of a recession in Germany last year. Carsten Brzeski, Global Head of Macro at ING, offered a somber assessment of the Eurozone’s largest economy, stating, “There is no imminent rebound in sight, and the economy looks set to go through the first two-year recession since the early 2000s. The year 2023 was another turbulent one, with the economy in permanent crisis mode.”
The Euro’s morning struggles were further compounded by a third consecutive contraction in the Eurozone’s industrial production, which fell by 0.3% in November. However, a surge in the Eurozone’s trade surplus, exceeding expectations at €20.3 billion, has somewhat cushioned the common currency’s losses.
Meanwhile, the Pound (GBP) faced indecision amid a lack of significant UK releases and heightened economic uncertainty. Last week’s lackluster GDP report, coupled with concerns about a potential technical recession, has left investors cautious about Sterling. Sandra Horsfield, an economist at Investec, remarked, “It remains touch-and-go whether the economy tipped into a technical recession in the second half of 2023. In either case, a better description of the trend might be stagnation. The recession, if it did occur, looks to have been as mild as they come.”
Looking ahead, the UK’s upcoming employment data, set for release tomorrow, is expected to be a key driver of GBP volatility. Economists anticipate a slight uptick in UK unemployment, reaching 4.3% in November. Additionally, UK wage growth data is due for release, with forecasts suggesting a decline in October’s three-month average reading to a six-month low. Signs of a weakening labor market could leave the Pound on the defensive during Tuesday’s trading session.
In the Eurozone, attention will turn to Germany’s ZEW economic sentiment index, which could prompt further EUR volatility. Following the discouraging GDP report, any additional economic concerns within the index may lead investors to reassess European Central Bank (ECB) interest rate cut expectations in the face of a sluggish economy, potentially influencing the Euro’s performance.
