This week has all eyes are still on whether the Bank of England will reduce interest rates on Thursday. The euro has also been hit by some disappointing business confidence index statistics coming out of Germany, with German business morale proving low to start off 2020.
Disappointing German Data Hits Euro
German data released today shows that the economy very narrowly avoided falling into recession in 2019. Germany’s Ifo Business Climate Index was published this morning, with lower than expected statistics at 95.9. for January. Combined with December’s also low reading at 96.3, low German business confidence is weighing heavily on the euro. The Ifo is one of Germany’s prominent leading indicator for business confidence and activity.
However, manufacturing in Germany is showing signs of recovery according to the index, but not in services. For trade, business climate has improved, but this was down to wholesalers, with retailers feeling more cautious about the economy.
The markets were hoping for a clear improvement in the German economy for the year, especially following the agreement of the Phase 1 trade deal between the US and China, hoped to calm nerves over global trade outlook.
Pound Could Sink or Swim This Week
Sterling is still under pressure from the Bank of England’s prospect of cutting interest rates at the Bank’s Monetary Policy Committee meeting on Thursday. This will be the main driver for the British pound this week, with those in both the UK and the EU watching Thursday’s meeting with great interest. Friday saw the release of some strong PMI data, but there’s still the possibility of a cut in interest rates.
Tomorrow will be a quiet day for economic data release, where we could see the euro make some gains against the pound. This is possible given investors will be focusing on the Bank of England meeting on Thursday. However, move forward to Wednesday, and we’ll see the release of February’s GfK consumer confidence survey. If confidence has increase in the EU, then the euro to pound exchange rate rill likely rise. All in all, if the news is positive for the EU, and the UK’s central bank cuts interest rates, the euro could end the week well.
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