Euro rallies as Eurozone avoids recession

The euro rebounded from multi-month lows on Tuesday, after the Eurozone’s latest GDP figures reported the bloc managed to avoid falling into a recession in the second half of 2023.

Meanwhile, trade in the pound is mixed so far this morning, with GBP/EUR stable at €1.1715 and GBP/USD slipping to $1.2675. GBP/CAD is muted at CA$1.7002, while GBP/AUD ticks up to AU$1.9294 and GBP/NZD holds steady at NZ$2.0710.

Coming up, will a hawkish interest rate decision by the Federal Reserve help to boost the US dollar later today?

What’s been happening?

The euro strengthened yesterday on the back of better-than-expected Eurozone GDP figures.

EUR investors were relieved as the data showed that the bloc avoided a recession. Although the fact the Eurozone economy still stalled in the last quarter of 2023 ultimately capped the euro’s upside potential.

The US dollar also trended higher on Tuesday, following a surprise uptick in the latest US job openings and labor turnover survey (JOLTS).

Signs of a robust US labour market were welcomed by USD investors, amid hopes it will encourage the Fed to leave interest rates on hold for longer.

Meanwhile, the pound struggled to attract support during yesterday’s session, after a statement from the International Monetary Fund (IMF) warning the UK against further tax cuts dampened hopes for growth-boosting cuts in Chancellor Jeremy Hunt’s upcoming Spring Budget.

What’s coming up?

All eyes will be on the Federal Reserve today as the US central bank delivers its first interest rate decision of 2024.

While no policy changes are expected from the Fed this month, USD investors will be paying close attention to its policy statement and Fed Chair Jerome Powell’s subsequent speech as they seek to gauge whether the bank will pursue a March rate cut.

This could trigger some significant volatility in the US dollar later this afternoon, depending on whether the Fed pushes back against the rate cut speculation.

In the meantime, the euro could face some headwinds later this afternoon, with the publication of Germany’s consumer price index. An expected deceleration of inflation this month may stoke European Central Bank (ECB) rate cut bets.

At the same time, movement in the pound is likely to be limited today as GBP investors brace for the Bank of England’s (BoE) interest rate decision on Thursday.

Data Releases

07:00 EUR German Retail Sales (Dec)