The Pound to Euro (GBP/EUR) exchange rate firmed to a session high of 1.338 on Friday as German economic data disappointed, casting some doubt on yesterday’s improved Eurozone growth forecasts announced by the European Commission.
Industrial production in the Eurozone’s largest economy rose by just 0.1% on a monthly basis in December. The rise disappointed economists who had expectations for a rise of 0.4%. On a year on year basis industrial production fell sharply to -0.4%. That figure is well below expectations for a year on year rise of 0.2%.
The data casts some doubt on yesterday’s announcement by the EC who said that it had upgraded its economic growth forecasts for the Eurozone. The EC now believes that the Eurozone economy will expand from its previous forecast of 1.1% to 1.3% this year. The revised forecast raised some eyebrows as the political uncertainty in Greece, a soft German economy; a weakening French economy and stubbornly high unemployment persist.
Despite the weak German data, economists were taking an optimistic approach to the data. Some said that the data shows that industry in Germany is gradually gaining momentum and that the nation looks set to get off to a strong start to the year as Thursday’s factory orders data showed that orders jumped to their highest level since April 2008.
‘It is difficult to see why the German economy should not accelerate further already in the first quarter of 2015 and beyond. The combination of already better hard data and signs of more to come as conveyed by leading indicators is a pleasant one to say the least,’ said Andreas Rees, an economist at UniCredit SpA based in Munich.
Industrial production out of Spain also disappointed as it fell by -0.9% instead of rising by 1.21% as forecast by traders.
BoE Rate Hike Expectations Support GBP Exchange Rate
The Pound Sterling meanwhile was continuing to find support after hitting a six-year high against a number of currencies. The support came from expectations that the Bank of England will be one of the only major central banks to hike interest rates in the near future.
‘If we look at all of the other central banks in the developed world, with the exception of the Bank of England and the US Federal Reserve, each one has recently either cut interest rates, intervened or jawboned, with the impact of weakening their currency,’ said Jane Foley, senior currency strategist at Rabobank.
Sterling could make give up earlier gains if upcoming trade balance data comes in worse than expected.
