German Consumer Price Index Data Sparks Euro (EUR) Rally as Pound (GBP) Sentiment Slows
After a strong day of gains for the Pound (GBP) the GBP/EUR exchange rate is this morning ceding ground due to a set of as-expected German Consumer Price Index figures. At present the GBP/EUR pairing is trending narrowly in the range of 1.3677.
Earlier…
Unsurprisingly the Monetary Policy Committee (MPC) voted today to maintain the UK benchmark interest rate at 0.5%, although meeting minutes indicate relative confidence in the continued health of the domestic economy.
Returning Grexit Fears Began to Weigh on Euro (EUR) as Pound (GBP) Faltered on an Increased Trade Deficit
Although Tuesday’s year-on-year second quarter Eurozone Gross Domestic Product printed with an unexpected increase at 1.5% the common currency (EUR) lost some of its wind due to a lack of other domestic economic data releases. As polls in Greece have demonstrated the increasing doubtfulness of former Prime Minister Alexis Tsipras returning to power with a majority, the threat of a Grexit has begun to loom over the Euro once again. These fears were only compounded on Wednesday as European Commission President Jean-Claude Juncker reiterated the fact that the new Greek government will have no room for manoeuver over the terms of the nation’s August bailout agreement.
Sterling (GBP) suffered something of a battering yesterday as another round of UK figures failed to show improvement, with a widened deficit on the Visible Trade Balance and a contraction in Manufacturing Production. Once again questions were raised as to the current health of the domestic economy, and to how misplaced Bank of England (BoE) Governor Mark Carney’s recent confidence that the UK remains insulated from global turmoil was.
Bank of England (BoE) Leaves Interest Rates Unchanged Today, Pound Sterling (GBP) Initially Holding Ground
Last night saw the UK’s RICS House Price Balance for August print at a decidedly above forecast increase of 53% rather than the expected 46%. The week’s first clearly positive data for the UK, this helped pick up the GBP/EUR exchange rate from its slump to retake ground throughout the rest of the morning, in spite of today’s imminent BoE Rate Decision. As the British Chamber of Commerce recently advised of the adverse impact an interest rate hike could have on the UK economy, with the body advising that the Monetary Policy Committee (MPC) should hold off until the second or third quarter of 2016, a dovish result seems inevitable and in fact desirable for the longer term prospects of Sterling.
As expected, the MPC today voted by 8-1 to maintain interest rates at 0.5% for another month. This persistently static stance on monetary policy was justified by notes of an increasing risk from negative global headwinds originating in China. Given the not-unwelcome nature of the decision and meeting minutes, in spite of a relatively dovish tone the realistic acknowledgement of the fragility of the domestic economy has led to no particularly dramatic shift in Pound trading.
GBP/EUR Exchange Rate Forecast: Lower BoE 12-Month Inflation Forecast Could Softened Pound
Tomorrow’s 12-month Inflation Forecast is likely to prove equally cautious in tone, with the chances of revised down expectations fairly strong in light of today’s MPC meeting minutes. A further lack of optimism may begin to substantially erode the GBP/EUR exchange rate over the coming days, as it seems unlikely that Sterling will be capable of holding its recent gains.
Fears of instability in the Eurozone could be, at least temporarily, eclipsed by the upcoming German Consumer Price Index data and its indication as to the current level of domestic inflation. However the hard line of the European Commission and the uncertainty of the upcoming Greek elections may well outweigh any more moderate figures.
Current GBP, EUR Exchange Rates
At time of writing the Pound Sterling to Euro (GBP/EUR) exchange rate is holding on an uptrend in the range of 1.3793, with the Euro to Pound Sterling (EUR/GBP) pairing slumping at 0.7249.
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