Home Daily Commentaries Euro falls as Germany enters technical recession whilst US debt ceiling talks grind on

Euro falls as Germany enters technical recession whilst US debt ceiling talks grind on

Daily Currency Update

This morning, GBP/USD is on the slide despite yesterday’s higher-than-expected inflation print, which saw it briefly snap upwards to touch 1.2470. Despite the overall reading for the Consumer Price Index slipping to 8.7% from 10.1% y/y this was not as far as predicted and the core number which strips out food and fuel actually rose to 6.8% from 6.2% y/y when no change was expected. Usually, this would lead to some continued pound support especially with markets now expecting up to four more rate hikes from the Bank of England rather than the two that were pencilled in before the release however markets are more and more focused on the US debt ceiling talks which is seeing investors seek the safety of the US dollar. There is no data of note from the UK for the rest of the week and we should likely expect all economic data globally to take a back seat (or at least have less of an impact) until a resolution is found between policymakers in the States over how much to raise its borrowing limit by. GBP/USD is down to around 1.2350 with GBP/EUR still rangebound just above 1.15.

Key Movers

Today we also see the first quarter GDP figures from Germany revised lower from flat to -0.3%. This follows from Q4 2022's contraction of -0.4%, meaning the Eurozone's biggest economy has slipped into what most economists would call a technical recession. Despite managing to get through winter without suffering any energy shortages due to warmer-than-expected weather and sourcing alternative energy supplies in response to Russian sanctions the German economy has been impacted by a dramatic hit to its export market on high prices and less Chinese demand. It will be a slow road to recovery if recent data is to go by with May seeing the latest Retail Sales, Industrial Production, Factory Orders, ZEW Economic Sentiment survey, Flash Manufacturing PMI, IFO Business Confidence, and GFK Consumer Confidence survey all missing forecast. Away from the Eurozone, we have the second reading of US Q1 GDP due at lunchtime with no change of the annualized 1.1% predicted however as mentioned all eyes will be on Washington to see if the Democrats and Republicans can find some common ground and raise the debt ceiling before the US Treasury runs out of cash to pay its bills. EUR/USD is close to 1.07, nearly a four-cent fall in three weeks.

Expected Ranges

  • GBP/USD: 1.2300 - 1.2430 ▼
  • GBP/EUR: 1.1460 - 1.1560 ▲
  • GBP/AUD: 1.8830 - 1.9000 ▲
  • EUR/USD: 1.0690 - 1.0820 ▼