The pound to euro exchange rate was 0.20% lower as sterling paused ahead of a big week for economic data.
Sterling was strong against the European single currency for six-straight days leading to a test of the 1.1278 resistance level from November.
GBPEUR was trading at 1.12235 in early trading on Monday and the pair will see inflation data and an ECB rate decision in the week ahead.
Commerzbank Bearish on GBP Outlook
Currency analysts at Germany’s Commerzbank have said they are bearish on the prospects for the pound over the coming months. The bank claims that sterling remains overvalued against the Euro, despite still trading at a large discount from the pre-referendum days.
The bank expects to see the pound depreciate in value against both the Dollar and Euro in 2021, saying in a report:
“The outlook for the currency is unlikely to improve much in the coming quarters, which is why we have turned slightly more pessimistic on Sterling”.
The British Pound was tipped by analysts to rally in the event of the EU and UK striking a post-Brexit trade agreement, however that has been subdued. The report added:
“The market has apparently quickly come to the realisation that, even with an orderly Brexit, the economic outlook for the UK remains bleak”.
It remains to be seen if this is the case for the UK and the proof will come from the economic performance post-Brexit. The ability to gauge that has been de-railed by the coronavirus and the country remains in lockdown until March at the earliest.
Economic Data to Drive the GBPEUR This Week
The pound to euro pair will be driven by the economic data this week. The first announcement will be the German inflation rate tomorrow as the largest European economy seeks to bounce from two months of -0.3% inflation. The country also sees the ZEW sentiment index with the survey of businesses looking for a reading of 60, versus 55 for the month.
Wednesday could be a volatile day as the UK releases its core inflation data in the morning, followed by the European numbers. The UK is looking for a reading of 1.3%, while Europe is expected to remain at 0.2%.
Thursday will then see an ECB interest rate meeting and press conference from the central bank. Last week’s minutes of the December meeting confirmed once more that the bank is uncomfortable with euro strength. This could be the purpose of any new rate move or stimulus package.
If the bank outpaces the Bank of England on stimulus size, duration or move more quickly to negative rates, they can cool the rise of the single currency.
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