ExchangeRates.org.uk – The Euro (EUR) initially stumbled as the week opened following news that Ifo business climate indicator for Germany dropped to 86.6 in August, touching its lowest level since February. However, the common currency’s losses were limited in scope, as an ongoing spell of weakness in the (USD) supported EUR, due to the pairing’s negative trading relationship.
On Tuesday, the latest data confirmed that Germany’s economy had shrunk during the second quarter, reinforcing concerns that Germany remains the ‘sick man of Europe’. Additionally, an unexpected downtick in German consumer confidence further undermined EUR exchange rates, pointing to a continually sluggish period of economic growth in the Eurozone’s largest economy.
On Wednesday, EUR weakened as its US counterpart staged a modest recovery. EUR extended its losses heading into Thursday’s session as the latest German inflation data surprised to the downside, with Germany’s consumer price index sinking to its lowest level since March 2021 at 1.9%. Friday saw the release of the Eurozone’s latest inflation release, which showed that prices pressures in the bloc had decelerated rapidly in July, falling from 2.6% to 2.2%. In the wake of Germany’s easing , the data served to reinforce speculation that the European Central Bank (ECB) could lower once again at its meeting next month. However, with the bloc’s unexpectedly dipping to 6.4% in July, signs of a continually robust labour market in the Eurozone served to offset the single currency’s downside. Federal Reserve bolsters expectation of further ECB rate cuts this year.
Pound (GBP) Pressured by Economic Pessimism
The Pound (GBP) was rangebound on Monday’s session as UK markets closed in observance of the British bank holiday. On Tuesday, GBP investors mostly shrugged off a significant slump in the latest Confederation of British Industry’s (CBI) reports. Additionally, markets appeared largely unfazed by UK Prime Minister Keir Starmer’s warning of a potentially ‘painful’ this year. GBP seemed to hold its ground as recent commentary from Bank of England (BoE) Governor reinforced speculation of diverging unwinding cycles by major central banks in the coming months, with the BoE expected to deliver a less aggressive policy-easing cycle than that of its peers.
On Wednesday, a souring market sentiment sapped appeal for the increasingly risk-sensitive currency. Meanwhile, a light spell of profit taking further undermined GBP following Sterling’s strong appreciation in recent weeks. Thursday saw GBP slump further as investors looked towards UK Chancellor Rachel Reeve’s looming Autumn Budget. Concerns over a ‘black hole’ in UK public finances left GBP on the backfoot, as markets speculated over potentially bleak tax rises across Britain in the months ahead. As the week drew to a close, GBP was largely rangebound amid a lack of data.
Pound Euro Exchange Rate Forecast: Eurozone GDP in Focus
Looking ahead, the Eurozone’s latest will likely be the focus for EUR investors this week. Confirmation of 0.3% growth in the second quarter could lend EUR support towards the end of the week. For the Pound, a lack of high-impact releases could see the UK’s finalised PMIs pulled into focus. Confirmation of expanding services activity may bolster GBP exchange rates.
This content was originally published on ExchangeRates.org.uk
