Euro stumbles as Bundesbank warns of weaker German economic growth

The euro fell back against the majority of its peers on Monday, after Germany’s Bundesbank warned that growth in 2021 is likely to miss its previous forecasts.

Meanwhile, the pound is trading in a narrow range so far this morning, with GBP/EUR buoyed at €1.1869 and GBP/USD flat at $1.3775. GBP/CAD is rangebound at C$1.7064, while GBP/AUD and GBP/NZD hold steady at AU$1.8362 and NZ$1.9228 respectively.

Coming up, will an improvement in UK retail sales volumes help to bolster GBP exchange rates today?

What’s been happening?

The euro got off to a poor start this week, with the single currency sliding in response to the Bundesbank’s latest monthly report, as it warned that German economic growth in 2021 is likely to ‘significantly’ miss its previous forecast.

Also weighing on EUR exchange rates was the latest IFO business climate index from Germany, which reported business morale in the Eurozone’s largest economy fell to a six-month low in October.

The pound, meanwhile, traded with modest gains on Monday, supported by some Brexit optimism, amidst reports the UK might be open to compromising with the EU regarding the Northern Ireland protocol.

At the same time, the US dollar rose in tandem with US Treasury yields during yesterday’s European trading session, in anticipation of a tapering announcement from the Federal Reserve next month.

What’s coming up?

Looking ahead, the Confederation of British Industry (CBI) will publish its latest distributive trades index later this morning.

October’s index is expected to report a modest improvement in retail sales volumes and could offer some support to the pound today.

This will be followed by a speech by the European Central Bank’s (ECB) Andrea Enria later this afternoon. Expect to see the euro face some headwinds if Enria reaffirms the ECB’s stance that the current rise in inflation is transitory, and that the bank doesn’t see the need to start tightening monetary policy.

Meanwhile, in the absence of any notable US data, movement in the US dollar may be driven by market sentiment, potentially leading USD exchange rates to weaken if a positive mood continues to prevail.