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Decades-High German Business Confidence Helps Euro Pound Exchange Rate Avert Losses

Strong German business confidence data has today helped the Euro Pound exchange rate to hold steady at opening levels.

While elsewhere Sterling is posting a mild recovery after the weakness of yesterday, EUR GBP is flat around 0.8912.

German Business Confidence Hits Decades-High, but EUR GBP Exchange Rate Struggles to Gain

The Euro has been able to hold opening levels versus a rebounding Pound after a surprise uptick in German business sentiment.

The latest Ifo survey shows that German business leaders are feeling the most confident since 1969 after the business climate index climbed from 116.7 to 117.5.

While the current assessment measure did unexpectedly weaken from 124.8 to 124.4 instead of rising to 125, the expectations index climbed to a seven-year high of 111.0.

It is worth noting that 90% of responses to the survey were submitted before the collapse of coalition talks on Sunday, which may have somewhat altered the feeling of German business leaders.

Ifo Institute President Clemens Fuest stated;

The German economy is on track for a boom. The latest figures indicate economic growth of 0.7 percent in the fourth quarter, pointing to growth of 2.3 percent for 2017 as a whole.

The surveys showed sentiment in the manufacturing sector was at a record high, with optimism in the wholesale sector only slightly under its historical best.

Retailers and construction firms were less upbeat, however, reporting worsening conditions, although retailers are feeling optimistic about the upcoming six months.

Mixed Bag of UK Developments Leaves Pound Sterling (GBP) Stuck at Opening Levels

A mixture of positive and negative developments for the UK is keeping the Pound stuck around opening levels versus the Euro today.

On the one hand Sterling has been weighed upon by news of falling consumer confidence, with the latest government research showing that household optimism is at its lowest since immediately after the vote for Brexit.

There are also lingering concerns over productivity after yesterday’s downwardly-revised Office for Budget Responsibility (OBR) forecasts, as well as worries that current levels of consumer spending are unsustainable after further signs households are raiding their savings in order to fuel consumption.

However, Sterling has also received a boost today, after Bank of England (BoE) policymaker Silvana Tenreyro commented that markets had dedicated much focus to the prospect of looser monetary policy as a result of Brexit, but had not prepared for a scenario in which Brexit forces borrowing costs to rise.

This, coming from a policymaker everyone expected to be rather cautious in her outlook when she joined the Monetary Policy Committee (MPC) in the summer, has helped keep a floor under the Pound.

EUR GBP Exchange Rate Forecast to Trend Sluggishly as ECB Cœuré Speech Wraps up the Week

A speech from Governing Council member Benoît Cœuré will round out the day’s Eurozone data calendar, while the UK’s docket has already wrapped up for the week.

The economic calendar takes a while to wake up next week, although German retail sales figures for October could provide some movement for the Euro; especially if they provide more evidence that the Eurozone’s powerhouse economy is on buoyant form.

The only development due from the UK at the start of next week is a speech from the newest member of the MPC, Sir David Ramsden.

With little else to provide support for the Pound, the EUR GBP exchange rate could see gains at the start of next week, although the political uncertainty in Germany could weigh on the common currency.