The Euro was stronger against the pound last week amid positive GDP data. The growth data for the Eurozone in the first quarter was stronger than expected with a 0.7% increase, beating expectations of only a 0.5% increase. Inflation for the Eurozone was confirmed at 3.3% y/y for April, retracting from an all time peak in March of 3.6%, the inflation at 0.3% in April was attributed mainly from a 1% rise in energy prices and a 0.5% rise in food costs.

Despite the positive GDP data last week ECB president Jean-Claude Trichet warned that the Eurozone was heading for a slowdown. The ECB’s policymaker Axel Weber said despite the expected slowdown there was no scope for rate cuts and that higher interest rates were still an option to control inflation.

This week we have the German ZEW predictions out on Tuesday. The ZEW speak to experts and try to predict what is going to happen with the economy. We also have the German IFO report out. The IFO looks at current German business climate aswell as their expectations for the next six months. With the data that is due out this week, if the IFO and ZEW data comes out lower than expected, then it would show that the credit crunch is kicking in, which will gradually affect the rest of the EU, therefore we could see the EUR weaken.

Even though we have seen positive GDP data, the ECB members have reiterated that GDP is expected to slow during the second quarter and the data due out this week could back up this view. It is expected that the ECB will keep their rates on hold at 4% for the next few months to see how things unravel.