GBP EUR swings at 1.2000 ahead of German data

The GBP/EUR exchange rate was trading near the 1.2000 level as the market awaits the latest data from Germany’s IFO business climate survey. Last month was the first positive increase in sentiment for six months as the country finally shrugged off virus restrictions.

The GBP to EUR will also face volatility risk from Russian stocks this week.

Putin set to make decision on breakaway republics

Russian President Vladimir Putin has told the Russian Security Council that he will make an imminent decision on whether to recognize the independence of the breakaway republics of Donetsk and Luhansk.

There were indications that Russia would give the West an ultimatum and a three-day window before recognizing breakaway regions in eastern Ukraine. If Putin goes for reconnaissance, it could almost ensure some level of war or serious conflict, as the breakaway republics would come under more intense attack from the Ukrainian military, which would likely lead to Russian intervention.

Putin also repeated that “if Russia faces the danger of Ukraine joining NATO, the threat to our country will increase significantly.” He was probably reacting to a provocative statement by Ukrainian Foreign Minister Dmytro Kuleba to “60 Minutes”.

Kuleba reaffirmed Ukraine’s desire to join NATO, which is a red line for Russia in recent tensions. The situation in Russia and Ukraine is a threat to the euro with the potential for conflict in its member states.

Bundesbank sees German economy shrinking again in Q1

Germany’s economy is likely to contract again in the current quarter as a new wave of virus infections keeps many people from going to work, the Bundesbank said on Monday. The bank predicted a rebound in the economy in the spring.

Europe’s largest economy contracted in the last three months of 2021 as its industrial sector was hit by supply chain issues. These have eased in recent weeks, but the rapid spread of the Omicron variant has affected services and employment.

“Unlike previous waves of the pandemic, it is not only activity in the service sector that is likely to be affected by containment measures and behavioral changes,” the German central bank wrote in a monthly report.

“Instead, the absence from work linked to the pandemic is likely to significantly dampen economic activity also in other sectors.”

The Bundesbank added that German industry was giving “a positive boost” to the economy as supply bottlenecks eased and demand rose, paving the way for a rebound in the spring.

The market is waiting for the IFO business climate survey on Tuesday, which is a business climate survey. Last month, the indicator reversed a six-month downtrend and another gain is expected this morning.

In the UK, Boris Johnson has lifted all covid restrictions and said those who test positive for coronavirus will no longer be legally required to self-isolate. Free universal testing was also due to end in April as part of the Prime Minister’s plan to ‘live with Covid’.

But he also told MPs: ‘Sage warns that there is considerable uncertainty about the future course of the pandemic and there may, of course, be significant resurgences. They are sure that there will be new variants and it is very possible that they will be worse than Omicron.

James R. Rhodes