The sterling to euro exchange rate was broadly steady this week as a result of positive Eurozone economic data released this week, with greater business activity, retail sales and business sentiment. At the same time as Germany, the bloc’s largest economy, showing a fall in factory orders and exports in November, alongside rising industrial production figures.

Eurozone Recovery Gathers Pace but Inflation Remains a Concern

EU’s der Leyen signals compromise approach to trade talks

Sterling was largely supported against the euro this week, in spite of the fact that European Commission (EC) President der Leyen pointed to a consensual tac to the UK/EU trade talks. Speaking in London, President der Leyen said that “Without an extension of the transition period beyond 2020, you cannot expect to agree on every single aspect of our new partnership. We will have to prioritise.”

This suggests that the EU is willing to agree parts of the trade deal by the end of this year, to meet PM Johnson’s deadline of December 31st 2020, and negotiate the rest later. In future, this smooth approach could affect the GBP to EUR interbank rate.

Eurozone’s economic data improves, Germany mixed

This week, we’ve learnt that the Eurozone’s composite Purchasing Managers’ Index (PMI), which measures the bloc’s overall economic activity, rose to 50.9 in December. This is above November’s 50.6, so points to increasing business momentum in Europe.

Also, the Eurozone’s retail sales rose by 1% in November, above forecasts for 0.6%, while economic sentiment increased by 0.3 points last month, to 101.5. All this bodes well for the common currency bloc’s economy, which may impact the euro in future.

However, it’s worth noting that Germany’s exports fell by 1.3% in November, while exports dropped by 2.3%, even as industrial production rose by 1.1%. So this suggests that the Eurozone isn’t completely out of the woods yet.

Looking to next week, key European economic data includes Germany’s inflation for December, released on Thursday 16th and forecast at 1.2%, and the European Central Bank’s (ECB) policy meeting accounts, made public next Thursday at 12.30.

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