The euro has rallied after the German election results, climbing to a one-month high against the pound and dollar. Meanwhile, GBP benefitted from a slump in USD after Wall Street investors express worries about US stagnation.
While the pound ended last week up on the dollar and the euro, buoyed by Wall Street’s misgivings and a market holding its breath for the result of the German elections, it has fallen behind the euro this morning as a measure of certainty returns to European politics.
After a week filled with UK data releases, there are no major planned announcements until Thursday’s report on nationwide housing prices. While data can often bring volatility to the market, as we saw with last week’s better-than-forecast GfK Consumer Confidence numbers and average earnings sending the UK 3% up against the dollar compared to previous month, this week it leaves sterling at the mercy of world events.
And, with Europe reacting to Friedrich Merz’s electoral win for the Christian Democrats (CDU) yesterday and the looming threat of the US’s negotiations with Russia, the pound is in an unpredictable spot.
The immediate reaction to the German elections was to send the Euro climbing to a one-month high, up nearly 0.5% against the dollar and a quarter of a percent against the pound as soon as the markets opened. Perhaps a vote of support for new chancellor Friedrich Merz’s talk of achieving “independence” from the US. Though, the long-term impact is unclear. Merz has a narrow coalition majority and getting any of the much-needed budgetary and governmental reforms through the Bundestag is going to be a complex ongoing challenge.
Not allowed a moments rest, the eurozone will also see a slew of data releases this week. Germany and France’s consumer confidence numbers are coming on Wednesday, with Italy’s published on Thursday. Then Friday will see the three countries publish their inflation rates.
The dollar fell against the pound and euro, after a survey of Wall Street investors released on Friday revealed a sharp drop in investor confidence. The S&P Composite PMI indicated near-stagnation in the private sector and the slowest pace of growth since September 2023. Thursday will see US figures on manufacturing and GDP growth rate, which could either confirm or deny those investor misgivings and have a knock-on effect for the dollar.
With Trump meeting both French president Emannuel Macron and British prime minister Keir Starmer this week to discuss negotiations with Ukraine and Russia, there is a lot of uncertainty for the markets to navigate.
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