A UK inflation rate rise has triggered a sharp Pound Euro downtrend today, given that it may point to hard times ahead for UK consumers.
While the monthly figure for January fell by -0.5% as expected, the annual printing showed a jump from 1.6% to 1.8%, coming perilously close to the Bank of England (BoE) target of 2%.
Given that the Pound has lurched down by -0.6% against the Euro on the news, hopes are not especially high for Wednesday morning’s earnings figures, which are still predicted to show little in the way of rapid wage growth.
(Last Updated AM February 14th, 2017)
High turbulence could be in store for the Pound Euro exchange rate before the end of March, given that the Brexit process is set to remain in focus from next week onwards.
The Article 50 bill that grants power to start ‘Brexit’ has now passed to the House of Lords, having been approved by the House of Commons.
The Pound could appreciate further if the Lords offer more significant opposition to the Article 50 bill.
With many observers in shock about how easily the bill passed through the Commons, signs of dissent among the Lords may be enough to boost Sterling demand.
While debates on whether to add could push the actual Article 50 trigger date further in the future, this is not expected to be a bad thing for investors.
Such a development would at least temporarily delay when the UK leaves the EU, as well as add the chance of UK-benefitting amendments being attached to the bill before negotiations begin in earnest.
However, GBP continues to find support from the latest UK economic news. This has seen national production rise in December, though the national deficit remains alarmingly high at around £-3.30bn.
Looking to factors that could hold sway over the Euro now, the Greek debt crisis remains a pressing issue for Eurozone officials as well as investors in the EUR.
An agreement between the Greek Government and its many international creditors needs to be reached by February 20th, though clear divisions still persist between the stubborn German contingent and more lenient lenders elsewhere.
Yanis Varoufakis, the former Greek Finance Minister, stated that even among Germany’s leadership there could be divisions, saying;
‘Grexit is a football being kicked around between Dr [Wolfgang] Schäuble and Mrs Merkel. Schäuble is determined to kick Greece out and Merkel is determined not to make a decision until she really must’.
If it becomes apparent that both sides of the talks will remain at loggerheads past the 20th, then the Euro is set to drop against the Pound.
This is because ‘Grexit’ fears could add further strain to this year’s numerous Eurozone elections, where the bloc’s more centrist establishments are likely to struggle against surging populism.
Recent Interbank GBP EUR Exchange Rates
At the time of writing, the Pound Euro (GBP EUR) exchange rate was trending in the region of 1.17 and the Euro Pound (EUR GBP) exchange rate was trending in the region of 0.85.
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