Euro subdued as Bundesbank warns Germany at risk of recession

Philip McHugh February 20th 2024 - 2 minute read

The euro was placed on the defensive on Monday after Germany’s Bundesbank warned the country is likely in a recession.

Meanwhile, the pound is mostly rangebound this morning, with GBP/EUR flat at €1.1683 and GBP/USD muted at $1.2585. GBP/CAD is stable at CA$1.6994, while GBP/AUD and GBP/NZD hold steady at AU$1.9259 and NZ$2.0480, respectively.

Looking ahead, could a speech by Bank of England (BoE) Governor Andrew Bailey inject some volatility into Sterling today?

What’s been happening?

The euro got off to a subdued start this week, following a warning from Germany’s Bundesbank.

EUR sentiment weakened as Germany’s central bank warned that the Eurozone’s largest economy is likely in a technical recession as it forecast GDP will contract again in the first quarter of 2024.

The pound also struggled to attract support on Monday, in the wake of comments from former Bank of England Chief Economist Andy Haldane.

Haldane warned that the BoE risks deepening the UK’s current recession unless it starts to cut interest rates in the near future.

Meanwhile, the US dollar traded sideways through yesterday’s trading session as the closure of US markets in celebration of Washington’s birthday created thin trading conditions in the ‘greenback’.

What’s coming up?

Looking ahead, the spotlight today will be on BoE Governor Andrew Bailey and some of his colleagues as they testify before Parliament’s Treasury Committee.

The members of the bank’s Monetary Policy Committee (MPC) will be grilled on their plans for interest rates, and the UK’s recent slide into recession.

If Bailey hints that the BoE may act to help support the UK economy by loosening its monetary policy the pound may stumble.

Elsewhere an absence of notable US and Eurozone data may leave movement in USD and EUR driven by external factors like market risk sentiment.

If a cautious market mood continues to prevail it’s likely that safe-haven demand will help to underpin both the US dollar and euro.

Written by
Philip McHugh

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