European Optimism Returns: UK and Germany Defy Recession Fears

After months of stagnation, the European economic engine is showing signs of life, providing a fundamental floor for GBP/USD and EUR/USD.

UK Growth Surprises to the Upside

The British economy is proving more resilient than the Bank of England's grim forecasts suggested.

• The Data: UKGDP grew by 0.3% month-on-month, beating the consensus estimate of 0%.
• Drivers: The growth was broad-based, led by a 1.1% jump in production and 0.3% in services.
• FX Impact: GBP/USD has found renewed traction. ING analysts note that strong growth reduces the likelihood of an early BoE rate cut, exposing EUR/GBP to potential downside breaks as the policy divergence widens in Sterling's favor.

Germany Exits Recession

Across the channel, the Eurozone's largest economy has finally turned a corner.

• Performance: Germany posted 0.2% growth in Q4, officially ending a two-year recessionary streak.
• Eurozone IP: Industrial production across the bloc rose 0.7%, beating the 0.5% forecast.

Strategic Outlook

While the US economy remains the global leader, the “convergence” trade is gaining momentum. If European data continues to outperform low expectations, the heavy short positioning in EUR and GBP could unwind, driving a relief rally against the Greenback.

• Key Level: Traders are watching 1.0900 on EUR/USD. A clean break above this level, supported by this week's data, would confirm a short-term bullish reversal.