The pound fell sharply yesterday after the UK inflation rate jumped from 7% to 9% – its highest level since 1982.
The single currency started the week on the front foot following a drop in the Eurozone unemployment rate to 7.2% in November from 7.3% the previous month.
Better-than-expected Eurozone industrial production data also bolstered the single currency, as figures showed a rebound from three months of contraction with 2.3% growth in November.
Meanwhile, contrasting comments from senior European Central Bank (ECB) policymakers caused some fluctuations in the euro through the week.
ECB President Christine Lagarde appeared unmoved by Eurozone inflation hitting 5% and reiterated the bank’s stance that inflation will soon ease, weighing on EUR sentiment.
At the same time, Vice President Luis Guindos said ‘perhaps inflation won't be as transitory as forecast’, suggesting to some investors that the ECB may be forced to tighten monetary policy sooner than its forward guidance has signalled.
The euro finished the week under pressure after German GDP growth for the year met expectations and showed the Eurozone’s powerhouse economy is yet to reach pre-Covid levels.
Eurozone balance of trade figures also dented EUR by unexpectedly revealing a trade deficit, the first since January 2014.
German ZEW surveys will be the first key driver of the euro this week. Forecasts point to economic sentiment in Germany improving slightly this month but still remaining well below the summer’s levels before the latest wave of coronavirus swept the country.
Finalised Eurozone inflation for December released on Thursday may weigh on the euro towards the end of the session. With the ECB likely to maintain its accommodative policy stance, its divergence from other major central banks such as the Federal Reserve and BoE may dent EUR.
Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure
Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)