The GBP EUR exchange rate was higher by 0.06% on Wednesday after the release of German IFO business climate data. The IFO survey dropped the fifth month in a row and analysts will be expecting further lows on the latest move to restrictions.
The GBP to EUR is trading just above the 1.1900 level with German GDP ahead today.
ECB and BoE policymakers discuss latest market outlook
Bank of England Governor Andrew Bailey was talking about policy on Wednesday and said that he did not believe that the bank would go back to a hard form of guidance.
He also added that it was not off the table that the bank gives no guidance at all on rates, with decisions being made meeting by meeting.
The latest comments come after the fuss caused by the bank’s failure to raise rates in the November meeting, which led to markets joking that he was an “unreliable boyfriend”. That was a reference to a previous claim about his predecessor Mark Carney, but Bailey spat the dummy.
At the European Central Bank, policymaker De Guindos of Spain noted that Inflation drivers were becoming more structural in the eurozone. However, he contradicted himself by claiming that the inflation rebound in recent months was created by transitory factors.
His colleague Fabio Panetta said that downside risks for the economy might be growing; but markets should not be alarmed if they see a one-off catch-up in wages in 2022. He also said that inflation temporary, while guidance conditions were not even close to being met. He warned, like Christine Lagarde recently, that premature tightening of policy could turn the supply shock into a longer recession and urged patience.
On the Article 16 issue, the European Union’s Sefcovic noted that talks on the Northern Ireland trade rules would ‘probably’ continue into next year.
German IFO weakens again in November
German IFO business sentiment continued to worsen in November, highlighting an economy that entered the fourth wave of the virus with weak fundamentals.
Germany’s most prominent forward indicator was lower for the fifth month in a row in November, coming in at 96.5, from 97.7 in October. The Ifo index is now at its lowest level since February with weakness in current conditions and forward expectations.
For traders, there is also the realization that the country is now moving back towards harsh restrictions.
ING said of the reading:
At the current juncture, and with the fourth wave of the pandemic escalating, all traditional leading indicators have actually become backward-looking indicators. They paint a picture of the economic outlook against the background of supply chain frictions, not the pandemic. As such, it will take until the December batch of confidence indicators before we have a better view of the economic impact of the fourth wave of the pandemic.
The GBP to EUR is trying to hold support above 1.1900 and that will depend on today’s release of German GDP, which is a final reading. ECB policy meeting minutes are also released today.
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