The Pound Euro (GBP/EUR) exchange rate climbed on Monday. The currency pair was bolstered by a return of risk appetite to the markets. Poor data for the UK’s manufacturing sector weighed on the pair however, as well as the Bank of England’s (BoE) downbeat outlook.
Significant gains for GBP/EUR were capped by better-than-expected consumer confidence figures for Germany, however. Hawkish signals for the European Central Bank (ECB) also kept the exchange rate pair’s gains limited.
At time of writing the GBP/EUR exchange rate was at around €1.1492, which was up roughly 0.3% from that morning’s opening figures.
The Pound rose on Monday. The currency was bolstered by a healthy risk appetite.
Some optimism over fresh talks between the UK government and nurses unions also helped GBP to tick higher. Reports indicated that UK health secretary Steve Barclay would be contacting unions in a bid to avert further industrial action.
A fall in the latest industrial trends orders figures from the Confederation of British Industry (CBI) kept Sterling’s gains limited, however. The December reading fell to -6, its lowest point since September 2020.
High inflation and weak global demand were highlighted as primary drivers of the drop in manufacturing sector output. 
‘The corrosive effect of higher inflation on demand is increasingly clear, as manufacturing output contracted at the fastest pace in two years over the last quarter.’
The Bank of England’s dovish interest rate decision also continued to weigh on the Pound. Following its decision to raise rates by 50bps last week, markets have continued to digest the BoE’s downbeat outlook for the UK economy.
The Euro ticked lower on Monday. A return of risk appetite weighed on the single currency as well as a drone attack on Kyiv by Russian forces.
EUR saw its losses limited by upbeat data releases, however. The December reading of Germany’s Ifo business climate index lent some optimism to the Eurozone’s fortunes on Monday. The index rose above forecasts to 88.6.
‘At the end of what has once again been a challenging year for the German economy, hope has returned: hope that the economy might even avoid a winter recession or at least hope that it will only be a mild one.’
Hawkish comments from European Central Bank officials also lent support to the single currency. Speaking on Monday, ECB Vice-President Luis de Guindos signalled that the central bank would continue to hike interest rates for as long as necessary.
Looking to the week ahead for the Pound, the latest CBI distributive trades figures could pull Sterling lower on Wednesday if they print as forecast. December’s figures are expected to slip even further amid soaring prices and high energy costs for businesses.
On Thursday, the final reading of third quarter GDP figures could also weigh on Sterling. The figures are expected to confirm a contraction in the UK’s economy. The data could add to prior recession warnings from the BoE.
Also on Thursday, third quarter current account figures could help to limit drastic losses for the Pound. Whilst the figures are expected to remain in deficit, the trade gap is forecast to have narrowed slightly.
For the Euro, the latest consumer confidence figures on Tuesday’s could pull the single currency lower if they print as forecast. December’s figures are expected to improve on the previous month’s but remain in negative territory.
The latest consumer confidence figures for Germany could have a similar effect on EUR if they slip as predicted on Wednesday.
Any hints of a hawkish rate hike path for the ECB could boost the Euro, however.
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