Summary

• GBP/EUR rate may be able to reverse some of its recent losses this week if global markets remain positive and the Sterling is able to avoid potential risks in the domestic schedule.
• The Pound traded near multi-month lows against the Euro when European inflation came in lower than expected for December and US payrolls showed lower-than-expected wage growth.
• The drop in US government bond yields and the subsequent decline of the Dollar have benefited currencies such as the Pound, which now has the potential to continue its recovery against the Euro until it reaches near 1.15.
• The market will also pay close attention to the UK GDP report for November, which is expected to show a 0.2% or 0.3% decrease, potentially leading to a recession in the UK.
• Public statements from the Governor of the Bank of England and other members of the Monetary Policy Committee will also be closely watched for indications of future changes to the Bank Rate.

Weekly Report

The GBP/EUR exchange rate appears to have stabilized after its December declines and could potentially reverse some of its recent losses this week if global markets remain positive, and Sterling is able to avoid potential risks in the domestic schedule.

Sterling had been trading near multi-month lows against the Euro when European inflation came in lower than expected for December, and just before the release of a US job report that showed lower-than-expected wage growth. The resulting drop in US government bond yields and the subsequent decline of the Dollar have benefited currencies such as the Pound, which now has the potential to continue its recovery against the Euro until it reaches near 1.15.

While the Pound may continue to gain if global markets remain positive in the coming days, much will also depend on how the Sterling handles the release of the UK GDP report for November on Friday. Forecasters predict a 0.2% decrease in GDP, which would almost guarantee a second consecutive contraction in the final quarter and the UK's entry into a recession that is expected to last for a year or more. However, the economist consensus predicts a steeper 0.3% decrease in GDP on Friday. The Pound may be influenced by any positive or negative surprises in the GDP report, but it is also likely to continue to receive support at 1.1290 and 1.1274 in the event of any renewed weakness in the coming days.

In addition to the GDP data on Friday, the market will also likely pay close attention to public statements from the Governor of the Bank of England, Andrew Bailey, as well as Huw Pill and Catherine Mann on Monday, Tuesday, and Thursday. Huw Pill and Catherine Mann are currently the most hawkish members of the Monetary Policy Committee, and there is uncertainty about how much further the Bank Rate will be raised in the coming months.