EUR/GBP: Expected Upbeat German Data to Buoy the Euro

Despite dovish remarks by European Central Bank President Mario Draghi yesterday, the Euro is deemed to gain opposite the British pound today on continuing signs that the German economy is recovering quickly. Meanwhile, the Pound is seen to dip after a Bank of England policymaker said yesterday that a weak currency could help exports.

ECB chief Mario Draghi’s remarks weighed on the single currency yesterday. In a statement before the European Parliament’s Committee on Economic and Monetary Affairs in Brussels, Draghi said the available indicators suggest further weakness at the start of 2013, with domestic demand remaining soft. He recognized that weak consumer and investor sentiment and the necessary balance sheet adjustments in both the public and private sectors are keeping a lid on demand. He also sounded a dovish tone on inflation, saying that annual inflation has continued to moderate. Draghi also said that the Euro’s exchange rate could affect the ECB’s forecasts for growth and inflation, suggesting that further significant gains could prompt additional stimulus measures from the ECB.

Nonetheless, the Euro looks poised for gains as the German economy continues to show signs of life. The German ZEW Economic Sentiment is estimated to rise from 31.5 points to 35.3 points in February, potentially its highest reading since May 2010. Such report likely corroborates Bundesbank’s forecast that the Germany economy will return to growth in the current quarter after shrinking by 0.6 percent in the last three months of 2012. For the rest of the year, the bank predicts that the economy will pick up gradually, improving prospects for the overall Euro Zone economy.

Meanwhile, the Sterling is believed to decline today after BOE member Martin Weale endorsed the Pound’s decline, saying it could help exports. In a speech at the Warwick Economics Summit in England, remarked that the slide in the Sterling will likely help reduce external imbalances and help exporters, who have been challenged by high levels of uncertainty. Considering these, a long position is advised for the EUR/GBP trades today.

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