With all the uncertainty surrounding the UK economy amidst Brexit, many would have expected the euro to be performing well against the pound. The Eurozone has been having problems of its own however, with the manufacturing sector - particularly in Germany - underperforming and problems in Italy a cause for concern. This, coupled with the chance of a delay in Brexit and a reduced chance in a no deal scenario have helped the pound reach a 21-month high against the euro this week.
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The German economy, which is seen as the engine room of the Eurozone and key for growth in the bloc, has been struggling of late and only narrowly avoided slipping in to a recession in the second half of 2018. The main reasons for the slowdown has been a result of a reduced global demand for their exports due to the trade tensions between the US and China and the impact of Brexit on consumer confidence. Italy on the other hand did fall in to a technical recession after negative growth in two consecutive quarters at the end of 2018.
This bleak outlook could have a knock on effect when the ECB meet next on March 7th to discuss future monetary policy for the bloc. The ECB announced the unwinding of their Quantitative Easing programme at the end of last year and suggested that there would be a change in interest rate policy during the latter part of the summer this year. With these recent events there could be a change in stance from the ECB and this could see some added volatility on GBP/EUR exchange rates.
Friday sees the release of inflation data for the Eurozone in February and the unemployment rate for January at 10:00 and both of these data sets are closely watched by the ECB when it comes to determining monetary policy. If these data sets disappoint then there could be further opportunities for euro buyers to take advantage of.
The main driver this week will continue to be Brexit developments, with a number of Brexit motions set to be voted on today in Parliament that could have an impact on the next steps in the Brexit timeline. Keep in close contact with your account manager to stay informed of all the latest market movement and help you make the decision on when to buy or sell your euros.
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