Easing German Inflation Shores up Pound Sterling Euro (GBP/EUR) Exchange Rate
Demand for the Euro (EUR) deteriorated in the wake of December’s German consumer price index data as inflationary pressure eased further than forecast.
While forecasts had pointed towards a decline in the headline inflation rate investors were still disappointed as inflation eased from 2.3% to 1.7% on the year.
With inflation in the Eurozone’s powerhouse economy now below the European Central Bank’s (ECB) 2% target the case for future monetary tightening looks increasingly limited.
As inflationary pressure across the Eurozone is unlikely to fare much better this left the single currency on a weaker footing, giving the Pound Sterling to Euro (GBP/EUR) exchange rate a leg up.
Even though the ECB expressed optimism in the inflationary outlook in its latest Economic Bulletin investors remain wary of the prospect of price pressures continuing to ease in 2019.
If the overall Eurozone inflation rate also slides in December this is likely to put further downside pressure on EUR exchange rates.
Better-Than-Expected UK Mortgage Approvals Boost Pound Sterling (GBP)
Pound Sterling (GBP) found some measure of support this morning as November’s BBA mortgage approvals data bettered forecast.
While approvals still showed a decline on the month the slowdown proved more limited than anticipated, accompanied by a surprise improvement on the year.
As November saw the first year-on-year growth in mortgage approvals since September 2017 this offered investors cause for confidence in the outlook of the UK housing market.
However, with uncertainty over Brexit still rife the GBP/EUR exchange rate struggled to capitalise on the mortgage data.
Labour leader Jeremy Corbyn’s call for an early end to the parliamentary recess, enabling an earlier vote on the divisive proposed Withdrawal Agreement, provoke fresh market jitters, meanwhile.
Evidence of Weaker Eurozone Manufacturing Sector to Weigh on Euro (EUR) Exchange Rates
December’s finalised raft of Eurozone manufacturing PMIs are unlikely to offer the Euro any particular support next week.
Confirmation that the Eurozone manufacturing sector remains under pressure could drag EUR exchange rates lower, especially if the Italian PMI fails to climb out of contraction territory.
With the currency union losing economic momentum in the final quarter of 2018 the mood towards the Euro looks set to remain sour.
However, the GBP/EUR exchange rate could return to a downtrend on Tuesday if the latest UK manufacturing PMI fails to impress.
Evidence that the sector is struggling to gain any traction in the face of persistent Brexit-based uncertainty would give investors fresh incentive to sell out of the Pound.
A weaker showing from the December UK services PMI could also weigh heavily on GBP exchange rates next week.
Any improvement on the month, however, could help the GBP/EUR exchange rate to extend its recent gains further.
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