According to official figures released yesterday morning the economy in Germany grew by just 1.5% which was its slowest rate of growth since 2013. The slowdown gathered pace in the second part of 2018 and this was down compared to the expectation of 1.8% after hitting 2.2% during 2017.

Currency Pair% Change in 1 monthDifference on £200,000
GBPEUR2.2%€5,050

Germany appears to have been negatively impacted by global politics and potential upcoming problems with trade. The car industry which amounts to a large part of the manufacturing sector has slowed down owing to a lack of global demand and growth combined with issues over the emissions and regulatory changes that have been brought in recently.

As Germany is the largest economy within the Eurozone this is a real concern for the currency and this is why we saw the Euro weakening against both the Pound and the US Dollar during yesterday’s trading session.

The Eurozone surplus has also increased since November which could be argued as good news but this was due to imports having fallen faster than exports rather than an improvement in German trade.

Inflation data to impact the Euro

On Thursday morning we see the next release of Eurozone inflation data for December with predictions of 1.6% for the year.

Inflation is a key concern for any Central Bank and with inflation having fallen since November this could discourage the European Central Bank from making any changes to their current monetary policy but if anything this could possibly cause Euro weakness as it means that as inflation is falling then this means the ECB will not be raising interest rates from their historic low anytime soon.

Italian Banks Under Pressure 

Italian banks have once again come under pressure after reports that the European Central Bank have told their lenders that they will have to cover all their bad loans within the next seven years.

This means that the banks involved will also have to increase their capital amounts and this caused a number of Italian banks to lose value on their share prices. Only Monte dei Paschi di Siena has revealed its balance sheet to the ECB with the others still yet to follow suit.

It has been clear from a long time that the Italian banking sector is not as strong as it could be.

With the banks in Italy coming under increasing pressure could this cause a problem for the Euro in the longer term. Italy’s Deputy Premier Matteo Salvini has said that the ECB’s attack on Italian banks was ‘irresponsible’ and this caused the single currency to weaken.

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