EUR/GBP holds positive ground near 0.8500 as traders await German, Eurozone GDP data
- EUR/GBP gains traction to around 0.8500 in Wednesday’s early European session.
- Retail Sales in Germany rose 2.2% YoY in March.
- Traders expected the BoE to cut its rate by a quarter-point to 4.25% in the May policy meeting.
The EUR/GBP cross trades in positive territory near 0.8500 during the early European session on Wednesday. The Euro (EUR) remains strong after the German economic data. Traders will shift their attention to the advanced estimate of Q1 Gross Domestic Product (GDP) from Germany later on Wednesday. Also, the preliminary Q1 GDP Growth Rate for the Eurozone will be released on the same day.
Data released by Destatis on Wednesday showed that Retail Sales in Germany declined 0.2% MoM in March, compared to the 0.8% growth seen in February. This figure came in better than the estimation of -0.4%. On an annual basis, Retail Sales rose 2.2% in March versus 4.3% prior (revised from 4.9%). The shared currency attracts some buyers in an immediate reaction to the stronger-than-expected German Retail Sales data.
Additionally, traders raise their bets that the Bank of England (BoE) will reduce interest rates when it announces its next move on May 8, which might drag the GBP lower. Financial markets have priced in nearly a 96% possibility that the BoE will cut its rate by a quarter-point to 4.25% when it announces its next move on May 8, according to a Reuters poll.
Traders will keep an eye on the preliminary Eurozone GDP report, which might influence the EUR. The Eurozone economy is expected to grow 0.2% QoQ in the first quarter (Q1). If the reports show a stronger-than-expected outcome, this could lift the EUR in the near term.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.