Euro subdued following shock fall in German economic growth

The euro struggled to attract support on Tuesday after Germany’s latest GDP figures showed the country is at risk of slipping into a recession.

Meanwhile the pound is mostly rangebound so far this morning, with GBP/EUR flat at €1.1868, and GBP/USD stable at $1.2842. GBP/CAD is steady at CA$1.7770, while GBP/AUD soars to AU$1.9762 and GBP/NZD is muted at NZ$2.1714.

Looking ahead, will the Federal Reserve’s latest interest rate decision infuse some volatility into the US dollar later this evening?

What’s been happening?

Trade in the euro was subdued during yesterday’s session in response to Germany’s latest GDP print.

Preliminary figures for the second quarter showed the Eurozone’s largest economy unexpectedly shrank, leaving Germany at risk of slipping into a recession this year.

However, the slide in EUR exchange rates was arrested later in the day by a stronger-than expected Eurozone GDP print and a surprise uptick in German inflation last month.

At the same time, the pound softened on Tuesday amid growing speculation the Bank of England (BoE) will cut interest rates when it concludes its latest policy meeting on Thursday.

The US dollar, meanwhile, trended broadly higher during yesterday’s session, with a cautious mood helping to underpin demand for the safe-haven currency.

These gains were then reinforced by data showing a smaller-than-expected drop in new US jobs openings last month.

What’s coming up?

Turning to today’s session, the spotlight will undoubtedly be on the Federal Reserve as it delivers its latest interest rate decision.

While the bank is widely expected to leave rates on hold this month, USD investors have overwhelmingly priced in a September cut and any confirmation could drag on the US dollar.

However, if the Fed were to push back against bets for a September cut, we could see USD exchange rates strengthen.

In the meantime, July’s preliminary inflation figures from the Eurozone are likely to act as the main catalyst of movement for the euro today. Will a cooling of inflation stoke European Central Bank (ECB) rate cut bets and drag on the single currency this morning?

Finally, in the absence of any notable UK economic data and with the BoE’s interest rate decision looming, GBP investors may be reluctant to make any aggressive bets today.