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Euro floated by better German GDP

Philip McHugh October 31st 2023 - 2 minute read

The euro enjoyed modest tailwinds on Monday after stronger-than-forecast German GDP data.

Meanwhile, the pound is largely rangebound this morning, with GBP/EUR edging lower at €1.1442 and GBP/USD flat at $1.2164. GBP/CAD is similarly muted at CA$1.6820, while GBP/AUD has narrowed to AU$1.9120 and GBP/NZD has ticked down to NZ$2.0807.

Looking ahead, will a stall in the Eurozone’s economy and easing inflation weaken EUR this morning?

What’s been happening?

The euro managed to attract some support on Monday, as Germany’s third-quarter GDP growth rate exceeded forecasts.

While it still showed a contraction of 0.1%, this came in above expectations of a -0.3% print. Consumer spending was found to be a key pressure, as elevated interest rates and persistent inflation bore down on German consumers.

Furthermore, the euro’s negative correlation to a weaker US dollar lent EUR support, although a sharp cooldown in German inflation capped gains.

The US dollar was undermined by both a short supply of data and a shift towards risk-on trade.

While the overall mood remained cautious, investors moved toward riskier assets, sapping the safe-haven ‘greenback’ of its strength.

The start of the week saw the pound unable to find its footing, as the focus shifted towards the Bank of England’s (BoE) upcoming interest rate decision.

What’s coming up?

Looking ahead, the primary focus for Tuesday’s session is likely to be the slate of Eurozone economic data, due to print later this morning.

Analysts expect the bloc’s economy to have stalled in the third quarter. This could dent EUR, although a surprise expansion in the bloc’s GDP data could lend the euro some support.

However, with inflation forecast to have cooled significantly across the bloc, a further pullback in European Central Bank (ECB) rate hike bets could weaken the common currency.

Meanwhile, the US dollar may trade sideways over today as the data calendar is set to remain light.

Additionally, Sterling may continue to see muted trade as the lack of data releases keeps the focus on the UK economy.

Written by
Philip McHugh

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