EUR/GBP surged on soft UK GDP data and less dovish ECB minutes

• GBP is under stress on soft UK GDP data along with ongoing Brexit saga.
• EUR got some boost from less dovish ECB minutes despite subdued EZ economic data.

EUR/GBP is now trading around 0.8848 in New York Session, up by 0.25% on soft UK GDP data and ongoing Brexit saga coupled with less dovish ECB minutes.

On Thursday, UK GDP for Q4 flashed as 1.4% vs estimate 1.5%; prior: 1.5% (Y/Y); on QoQ basis, it flashed at 0.4% vs estimate 0.5%; prior: 0.5%. UK business investment data also came subdued.

Overall, the softer UK Q4 GDP data may be a function of tepid private capex as a result of Brexit uncertainty and subdued activity in mining, energy generation, service and above all a reflection of a stronger currency, negative for the export savvy UK economy. For 2017, GDP was revised lower to 1.7% from 1.8%, the slowest rate since Q3 Dec 2012.

Meanwhile, in the ongoing Brexit saga, UK Prime Minister Theresa May will shut her most senior cabinet ministers away in a room until late Thursday night in an effort to force them to agree what kind of Brexit they want. But officials warn in private that the most divisive decisions may get kicked down the road and a common path of Brexit may be still far away.

On the other side, the EUR is also under pressure on a flurry of soft PMI across the Eurozone (EZ) including Germany on Wednesday and German IFO data on Thursday, which casts a shadow on the narrative of reflation.

On Thursday, German IFO Business climate index for Feb also came subdued at 115.4 vs estimate 117.1; prior: 117.6. Similarly, German business expectations, current assessment all came muted and below estimate. Overall, it seems that the recent plunge in the German stock market may have also affected the German consumer sentiment along with a stronger currency (EUR).

But, it’s also important to note that this was the first decline of EZ PMIs in 3 months and comes on the heels of the strongest EZ PMI reading since 2006. The PMI data shows that the EZ economy is still very strong, hovering around 60 and activity is simply easing from record high levels.

Meanwhile, the German finance  monthly bulletin was also very upbeat on the prospect of the German economy. As par German Finance ministry, Germany’s broad-based economic upswing is expected to continue and he is very bullish on German economic outlook amid strong domestic demand, high private consumption, record high employment and rising real wages growth along with increasing job security.

Also, lower borrowing costs, rising export orders from abroad and upbeat private capex is supporting the German economy, which in effect will also help more jobs´ creation, wages´ growth and ultimately would spur consumer spending, growth, and inflation.

The latest ECB minutes showe that some council members favored dropping the easing bias, but ialso highlighted that changes in communication are premature at this stage. Overall,  the ECB communication policy will evolve to avoid abrupt, disorderly adjustments later and communication stance could be revisited in forthcoming meetings. ECB is increasingly confident about inflation outlook but patience is also required.

Although the above minutes are nothing new to the market as it’s in line with Draghi presser post-ECB meeting, EUR bulls may be happy that the ECB is at least discussing a change in policy guidance, albeit gradually and thus it looks less dovish than expected, giving EUR a boost.

Technically, as par Fibonacci pattern, EURGBP now has to sustain above 0.8875 for a further rally towards 0.8929-0.8996 and 0.9082; otherwise, sustaining below 0.8830 it may again fall toward the 0.8805-0.8775 and 0.8730-0.8680 price zones in the coming days.