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GBP/EUR strikes 18-month high as German economic sentiment plunges

currency-newsGBP/EUR strikes 18-month high as German economic sentiment plunges
The euro stumbled on Tuesday, in response to disappointing German ZEW economic sentiment index.

Meanwhile, movement in the pound is limited so far this morning, with GBP/EUR flat at €1.1803 and GBP/USD subdued at $1.3821. GBP/CAD is rangebound at C$1.7336, while GBP/AUD and GBP/NZD hold steady at AU$1.8859 and NZ$1.9749 respectively.

Looking ahead, will another stronger-than-expected US inflation print propel the US dollar higher this afternoon?

What’s been happening?

The euro came under significant selling pressure through yesterday’s trading session, in light of a lacklustre ZEW survey from Germany.

August’s survey revealed a sharp slump in German economic sentiment, with the ZEW index plummeting from 63.3 to 40.4, far below the more modest drop to 56.7 which was forecast.

This was the lowest economic sentiment reading since November, and highlighted economists’ concerns over a potential slowing of inflationary pressure in the Eurozone, which reflected poorly on the euro.

The pound, meanwhile, mostly traded in a narrow range on Tuesday, as renewed Brexit concerns counteracted rising optimism over the UK’s currency coronavirus situation following the news that 75% of adults in the UK are now fully jabbed.

At the same time, the US dollar was also confined to a limited range during yesterday’s trading session as a modest improvement in market risk appetite sapped demand for the safe-haven currency.

What’s coming up?

Top of the agenda today will without a doubt, will be the publication of the latest US consumer price index.

Consensus estimates forecast’s July’s CPI figures will report a modest slowing of price growth, with US inflation expected to slow from decade high of 5.4% to 5.3%.

However, US inflation has consistently overshot expectations so far in 2021, and should July’s release continue this trend then we are likely to see the US dollar strengthen this afternoon.

In the meantime, German inflation printed in line with expectations this morning, which may offer some support to the euro.

Finally, in the absence of any notable GBP data releases, the pound may continue to trade sideways today as they await the publication of the UK’s quarterly GDP release on Thursday.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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