The pound to euro interbank exchange rate has hit 1.2081 today, its highest in 39 months, or since September 3rd 2016. In part, this is because Prime Minister (PM) Boris Johnson’s Conservative Party has won the UK’s general election. It’s thought that this will enable the UK to finalise Brexit faster, and provide stability for Britain in 2020.
However, turning to the Eurozone, the common currency lost out this week, even though the bloc’s economic data exceeded expectations.
To begin, Germany’s exports unexpectedly rose by 1.2% in October, said Statistiches Bundesamt Deutschland this week, above forecasts for a minus 0.3% fall. Also, Germany’s trade surplus surprisingly expanded in October, up to €20.6 billion, above predictions for €19 billion.
These figures surprised the financial markets, because Germany has been one of the economies most affected by the US/China trade war, so these upbeat data point to a recovery.
As a result, Germany’s ZEW economic sentiment for December climbed to 10.7 this month, above forecasts for 0.0. ZEW President Professor Achim Wambach said that: “This hope results from a higher than expected German foreign trade surplus in October, alongside a stable German labour market.” If this upbeat trend continues, it may affect the euro.
Elsewhere, the European Central Bank (ECB) kept interest rates steady at their all-time low of 0.0% this week, as widely forecast.
However, in the accompanying press conference, new President Christine Lagarde struck an optimistic tone about the Eurozone’s economic outlook. For example, Ms. Lagarde said that the “downside risks on the horizon” to the Eurozone’s economic growth, inflation and interest rates “are less pronounced.”
The ECB now forecasts that the euro bloc’s inflation will rise to 1.6% by 2022, closer to the official target of just-below 2.0%. Ms. Lagarde called this “directionally good”, which could influence the euro, looking ahead.
Turning to next week, the euro might be impacted, if UK PM Johnson starts ratifying the Brexit deal, and begins negotiating the UK’s future trade deal with the EU.
In addition, key Eurozone economic data includes Germany’s manufacturing PMI (Purchasing Managers’ Index) for December, released on Monday, and Eurozone inflation for November, made public next Wednesday.
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