The GBP EUR exchange rate was higher by 0.10% on Tuesday despite a better-than-expected ZEW economic sentiment index from Germany. GDP numbers for the Eurozone were also better. Traders are taking the latest figures with a pinch of salt due to the recent lockdowns and restrictions.
The GBP EUR was trading at 1.1765 and will have UK GDP for the last three months released tomorrow.
ZEW sentiment and third quarter GDP beat estimates
The German ZEW headline numbers for December have shown economic sentiment unexpectedly improving to 29.9 from 31.7 previous while beating estimates of 25.3.
The Current Conditions sub-index slumped to -7.4 in December compared to 12.5 recorded in the previous month and 5.0 expectations. The latter number weighed on the euro with Germany pivoting to more restrictions.
The Eurozone ZEW Economic Sentiment for December was higher at 26.8 for the current month, compared to 25.9 previously.
For the German figures, traders are looking beyond the immediate numbers to the ongoing restrictions and the economy is still weighed by supply chain issues.
“The German economy is suffering noticeably from the latest developments in the COVID-19 pandemic,” ZEW President Achim Wambach said, and added that “persisting supply bottlenecks are weighing on production and retail trade.”
“The decline in economic expectations shows that hopes for much stronger growth in the next six months are fading,” Wambach said. In particular, earnings expectations of export-oriented and consumer-related industries in Germany were “assessed more negatively.”
British government still leaning to a measured virus approach
The UK government is still taking a more measured approach to the virus as experts say the current variant is mild.
Clive Dix, a former government task force member joined other scientists in saying that the virus variant is mild.
“We will get a massive wave of Omicron, there’s no doubt about it. But all of the data shows – and the trends are all in the same direction – that it’s not a particularly vicious virus and the symptoms, particularly in vaccinated people, will be relatively mild,” he said.
“So, we won’t see another surge in hospitalisations and serious illness and death, which is the key thing. I think we’ll be in good shape,” Mr Dix said.
“Boris Johnson is right. Christmas will be better than last year. Once we firm up the data on how serious this virus is – which I think will be mild – then I think Christmas will be good. We should exercise a bit of caution, but we shouldn’t be ruining Christmas this year,” he added.
Financial markets have been buoyed by the data and are pushing for the ‘Santa Claus’ rally in stock markets. Thursday will bring the latest UK GDP figures and that could spur buying in the pound sterling if the numbers are better.
The Bank of England will meet a week later and both policymakers and traders are on the fence about the potential for an interest rate hike.
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