GBP / EUR: Euro turns to German data on ZEW economic sentiment

  • British pound (GBP) rises on hawkish BoE
  • UK economic calendar is light
  • Euro (EUR) drops after weak German factory orders and investor sentiment in the EA
  • German ZEW data on economic sentiment tomorrow

The euro pound exchange rate (GBP against EUR) rose for the second day in a row. The pair gained 0.37% on Monday to settle at € 1.1750, up to its daily high and recouping much of the previous week’s losses. At 05:45 UTC, the GBP / EUR is trading + 0.16% at € 1.1769.

The pound sterling rose in the previous session after better than expected UK construction data and after the Bank of England’s Broadbent gave a more belligerent speech than expected.

Activity in the construction industry reached 55.5 on the construction PMI index in November, indicating a robust recovery in the sector. A level above 50 indicates expansion.

Looking ahead, no high impact UK economic data is expected to be released today.

A speech by Deputy Governor Ben Broadbent further boosted the pound, which warned Britain’s tight labor market would raise inflation further, potentially above 5% by April next year. His comments sparked optimism surrounding an interest rate hike. Recent Omicron developments had dampened expectations of a rate hike in December.

The euro lost ground after data showed German factory orders collapsed in October as foreign demand slumped. Orders fell 6.9% in October, following a 1.8% increase in September. The figure was well below the 0.5% drop expected by analysts. Looking deeper into the data, domestic orders rose 3.4% in October, while domestic orders plunged 3.2%. Data suggests that the German economy got off to a slow start in the last quarter of the year.

In addition to weaker factory orders, the eurozone investor sentiment gauge also fell more than expected in December. Data revealed investor morale fell to 15.5, its lowest level since April, as virus fears reignited across the region and more covid restrictions were imposed.

Looking ahead, the focus remains on the economic calendar and in particular on Germany with the publication of the German ZEW Economic Sentiment reading. The indicator should highlight a sharp drop in sentiment amid rising COVID and rising prices.

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