The first quarter German gross domestic product report confirmed that the Eurozone’s powerhouse economy started the year on a stronger footing, offering a boost to the Euro.
Even so, with the European Central Bank (ECB) maintaining its neutral policy bias the prospect of any rise in interest rates remains distant.
This limited the appeal of the single currency on Friday, in spite of the bullish German data.
While the outlook of the German economy remains positive investors saw only limited cause for confidence.
As Carsten Brzeski, Chief Economist at ING, noted:
‘The German economic recovery has entered its ninth year and there are no signs that this recovery could come to an abrupt halt. This performance is even more remarkable, given the absence of any new structural reforms. To transform this chart topper on permanent repeat into a real evergreen, new structural reforms and public and private investments are unavoidable.’
However, if GDP results from the rest of the Eurozone prove to be encouraging then EUR exchange rates could return to a more bullish trend next week.
While forecasts point towards a solid improvement in Greek growth, though, concerns over the future of the Hellenic nation could continue to weigh on the single currency.
The latest raft of tax reforms and pension cuts agreed with creditors in exchange for the release of its next tranche of bailout funds will face a parliamentary vote on Thursday.
With the opposition refusing to back the measures and the government only holding a slim majority the Euro could come under pressure ahead of the vote.
Confidence in the Pound, meanwhile, weakened in response to a raft of poor UK data and a less-than-encouraging Bank of England (BoE) meeting.
Markets were disappointed that only noted hawk Kristin Forbes voted in favour of an immediate interest rate hike, even though the tone of the quarterly Inflation Report was somewhat upbeat.
There were some concerns that the Bank’s revised growth and inflation forecasts are too optimistic, being based on a smooth Brexit scenario with a transitional deal.
As relations between UK and EU politicians have soured significantly even before formal negotiations begin the chances of a hard Brexit or an exit via the cliff edge seem rather higher.
A weaker-than-expected NIESR gross domestic product estimate put additional downside pressure on Sterling, indicating that growth continues to slow.
Ahead of Tuesday’s consumer price index report the Euro Pound exchange rate could extend its recent gains, with optimism in the outlook of the UK economy limited.
Solid US jobless claims figures helped to shore up the US Dollar, in spite of ongoing worries over the state of the Trump administration.
This added to the impression of a robust US labour market, encouraging investors to continue betting on the likelihood of a June interest rate hike from the Federal Reserve.
However, with markets pricing in an imminent rate move as a near-certainty the ‘Greenback’ remains vulnerable to downside pressure.
If this afternoon’s advance retail sales figure indicates a further improvement in consumer confidence then the Euro US Dollar exchange rate could return to a slump.
Current EUR GBP USD Interbank Exchange Rates
At the time of writing, the Euro Pound exchange rate was on bullish form at 0.8457. Meanwhile, the Pound Euro exchange rate was trending narrowly around 1.0870.