Euro strengthens despite surprise contraction in German GDP

Philip McHugh January 31st 2023 - 2 minute read

The euro trended broadly higher on Monday. The single currency shrugging off a weaker-than-expected German GDP print.

The pound, meanwhile, is trading in a wide range this morning, with GBP/EUR stable at €1.1389 and GBP/USD slipping to $1.2313. GBP/CAD is rangebound at $1.6546, while GBP/AUD and GBP/NZD tick up to AU$1.753 and NZ$1.9135, respectively.

Looking ahead, will the euro be able to maintain this positive trajectory if the Eurozone GDP figures also disappoint?

What’s been happening?

The euro opened this week on solid footing, despite Germany’s latest GDP release reporting a surprise contraction in the Eurozone’s largest economy in the fourth quarter of 2022.

This uptick in the euro may have been supported by a notable improvement in German economic sentiment this month.

Meanwhile a risk-off impulse helped the US dollar trade with modest gains on Monday as the war in Ukraine weighed on market sentiment.

However these gains remained limited as USD investors are reluctant to make any aggressive bets ahead of the Federal Reserve’s upcoming interest rate decision.

At the same time, the downbeat mood left the pound on the defensive through yesterday’s session.

What’s coming up?

In the spotlight today, will be the preliminary publication of the Eurozone Q4 GDP figures.

The initial estimate is expected to report the bloc’s economy suffered a modest 0.1% contraction at the end of 2022. This will open up fears the Eurozone may have slipped into a recession at the start of this year and could drag on the euro today.

This is unlikely to be helped by the release of Germany’s latest retail sales figures at the start of the session after reporting sales growth contracted sharply in December.

For GBP investors the focus this morning may be on the Bank of England’s (BoE) latest consumer credit release. If credit levels remain elevated in December it could raise concerns over the health of the UK economy as it may point to households needing to borrow more to make ends meet.

Finally, the US will publish its latest consumer confidence figures this afternoon. However the impact on the US dollar may remain limited as investors continue to brace for the Fed’s interest rate decision on Wednesday.

Written by
Philip McHugh

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