Currencies Direct – Currency Outlook

Currency outlook: Euro tumbles on lacklustre data, US dollar bolstered by gloomy mood

Euro

EUR/GBP: Down from £0.86 to £0.85

EUR/USD: Down from $1.10 to $1.08

The euro got off to a poor start in 2024 as some disappointing data raised concerns over the Eurozone’s economic trajectory.

The euro’s negative correlation with the US dollar also acted as a headwind for the single currency in recent weeks, amid a revival in demand for the safe-haven ‘greenback’.

Hawkish commentary from the European Central Bank (ECB) helped to temper the downside in EUR exchange rates throughout the month, as officials continued to push back against interest rate cut expectations.

However, the euro still ticked lower again after the ECB’s first interest rate decision of the year, as President Christine Lagarde wasn’t perhaps as forceful in dispelling rate cut bets as EUR investors had hoped.

Looking ahead to February, the euro may remain on the defensive if Eurozone economic data continues to disappoint.

Pound

GBP/EUR: Up from €1.15 to €1.16

GBP/USD: Unchanged at $1.27

The pound trended broadly higher over the past month, but its ascent did not come without hurdles.

This came as a result of some uneven UK data. While Sterling was supported by stronger-than-expected service sector growth and a surprise acceleration in inflation, it also faced headwinds as underwhelming GDP and retail sales figures stoked UK recession fears.

GBP exchange rates were also influenced by Bank of England (BoE) rate cut speculation. Bets that the BoE could begin loosening monetary policy as soon as April infused some volatility into the Pound in the latter half of the month.

Looking ahead, the start of February will see the BoE deliver its first interest rate decision of 2024. No policy changes are expected next month, but the BoE’s forward guidance could provide a boost to the pound if it seeks to quell rate cut speculation.

US Dollar

USD/GBP: Unchanged at $0.78

USD/EUR: Up from €0.90 to €0.91

The US dollar found its footing again in January, helping the currency to claw back a good portion of its losses from December.

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