Turning to the Eurozone, it’s been another mixed week for economic data. Industrial production rose slightly in December, but not to the forecasted extent. Inflation in Germany was steady last month, although still below the European Central Bank’s (ECB) official target of close-to-but-below 2.0%.

Eurozone’s Factories Rebound in December Although Growth Still Sluggish

This week we learnt that Eurozone industrial production rose by 0.2% in December month-on-month, partially undoing November’s 0.9% decline. This was because last month the USA and China announced a “phase one” truce to their trade war, thereby lifting global demand for manufactured goods, including the Eurozone’s.

However, this 0.2% rise was below economists’ forecasts for a 0.3% gain, while on a yearly basis, the euro bloc’s factories still produced 1.5% less. This suggests that the Eurozone’s manufacturing sector isn’t yet out of the woods, thus limiting the euro’s gains.

German Inflation Steady at 1.5% in December, Below ECB Target

German Inflation Steady at 1.5% in December, Below ECB Target

Turning to Germany, the Eurozone’s largest economy, inflation rose by 1.5% in December, the same as November, according to official statistics agency Destatis this week. Although this signals steady price pressures, it’s still below the ECB’s target.

This suggests that even the euro area’s powerhouse economy’s growth remains too moderate to generate consistently higher inflation. This could help convince the ECB to keep borrowing costs at their current all-time low of 0.0%, or perhaps even lower, for the foreseeable future.

Monetary Policy Decisions From the ECB and BoE Likely to Influence GBPEUR Later This Month

There are some key Eurozone economic releases next week. These include the ECB’s latest interest rate decision, due on Thursday 23rd.

Its also likely that the pound to euro interbank exchange rate may be affected by the BoE’s upcoming interest rate decision. As I say, markets aren’t yet sure if the UK Central Bank will cut or not, explaining the pound’s partial rebound late this week.

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