German Inflation Uptick Fails to Lift Euro Pound Sterling (EUR/GBP) Exchange Rate
Confirmation that the German consumer price index strengthened from 1.1% to 1.5% on the year in December failed to shore up the Euro to Pound Sterling (EUR/GBP) exchange rate.
With the impact of the inflation data already largely priced into the Euro (EUR) the impact of the finalised figures proved limited.
Increasing doubts over the ultimate outcome of the phase one US-China trade deal weighed on market sentiment this morning, as concerns over the global trade outlook lingered.
With US tariffs set to remain in place on Chinese produce for some time yet to come investors saw little reason to bet on any significant improvement in trade conditions.
Given the German economy’s exposure to a trade slowdown this cast a fresh shadow over the health of the Eurozone as a whole, limiting the strength of EUR exchange rates.
EUR Exchange Rates Look for Boost on Signs of ECB Optimism
The mood towards the Euro could pick up on the back of the release of the European Central Bank’s (ECB) December meeting minutes, however.
If policymakers showing increasing signs of optimism over the economic outlook the EUR/GBP exchange rate could find a rallying point.
Although no change in monetary policy looks likely in the near future evidence that the central bank is shifting away from a dovish outlook may encourage greater demand for the single currency.
On the other hand, if the ECB takes a more cautious view on Eurozone growth this could expose the Euro to renewed selling pressure.
With the German economy looking at risk of having slipped back into a state of contraction at the end of 2019 the potential for EUR exchange rate gains looks rather muted in the days ahead.
UK Retail Sales Recovery May Offer Pound Sterling Encouragement
Pound Sterling (GBP) may recover further ground ahead of the weekend, meanwhile, if December’s UK retail sales data improves as forecast.
Signs of stronger consumer spending could limit worries over the risk of a fourth quarter growth slowdown, given the way that consumer demand has helped to shore up the economy in recent years.
A rebound from November’s monthly contraction in retail sales would also suggest that domestic confidence picked up in the wake of the general election result.
While it remains to be seen whether consumer sentiment holds up in the face of the next phase of UK-EU negotiations a stronger reading here could still give the Pound a solid boost.
Even so, an uptick in retail sales is unlikely to be enough to alter the increasingly dovish outlook of the Bank of England (BoE).
As long as policymakers appear prepared to cut interest rates at the end of the month GBP exchange rates look set to remain biased to the downside.