UPDATE
The Euro to Pound Sterling (EUR/GBP) exchange rate was trending within a limited range on Wednesday morning.
After the US Dollar softened in response to fears of a Chinese economic slowdown, the share currency advanced thanks to negative correlation. The prospect of long-term delays to a Federal Reserve benchmark rate hike is positive for European growth, especially if the European Central Bank (ECB) opt to expand quantitative easing in the hop of stoking Euro-are price pressures.
The Pound, meanwhile, is holding a comparatively weak position after yesterday’s data showed inflation dropped into negative territory. A slight Sterling appreciation can be linked to speculation that the downtrend following the soft inflation data was overdone, especially when you consider the lack of price pressures on a global scale. Labour market data, due for publication later on Wednesday morning, has the potential to provoke changes for the British asset.
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7458.
Yesterday…
GBP/EUR Exchange Rate Predicted to Plummet after UK Consumer Prices Contract
The Pound Sterling to Euro (GBP/EUR) exchange rate dived by around -0.8% on Tuesday afternoon.
Despite assertions from Bank of England (BoE) Governor Mark Carney that the period of low inflation is transitory, September’s Consumer Price Index showed British inflation dropped into negative territory again. Given that the Monetary Policy Committee (MPC) highlighted the absence of price pressures as the primary reason for holding the benchmark interest rate, the latest data indicates that there is still a long way to go before traders can expect tighter monetary policy. On the year, September’s Consumer Price Index dropped to -0.1% despite predictions that inflation would hold at 0.0%. In addition, September’s Core Consumer Price Index held at 1.0% on the year; missing the median market forecast rise to 1.1%.
Moderate gains in the Shanghai Composite Index and a positive score from UK sales data wasn’t enough to overshadow the disappointing drop into negative inflation. The Shanghai Composite Index advanced by 0.2% at the end of the Asian session, adding to a succession of advances seen since the 5-day holiday. This is positive for the UK because the Government plans to merge the British and Chinese equity markets. BRC Like-for-Like Sales came in at 2.6% on the year in September; bettering the median market forecast 1.5% increase. This caused Sterling gains in the early stages of Tuesday’s European session, but the rocky inflation data micrified any positivity.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.3406.
EUR/GBP Exchange Rate Forecast to Rally after German Inflation Met with Estimates
Unlike the British inflation data, German Consumer Prices met with the median market forecast. Although 0.0% inflation is by no means a positive result, the avoidance of dropping into negative territory is important because it may see the European Central Bank (ECB) opt to hold off adjusting monetary stimulus in the hope that the current program of quantitative easing starts to have an impact. It also bolsters the case made by many analysts who feel that the period of low inflation is transitory.
However, gains have been pegged back somewhat following a particularly disappointing German ZEW Economic Sentiment survey. October’s ZEW Economic Sentiment survey came in at just 1.9: a much greater drop than the median market forecast fall from 12.1 to 6.5. The poor score is likely to be the result of the Volkswagen scandal with German’s fearing that the bedrock of their economy (automobile exports) will be irrevocably damaged.
The Pound Sterling to Euro (GBP/EUR) exchange rate has fallen to a low of 1.3335 during Tuesday’s European session.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast to Hold Losses despite Poor German ZEW Economic Sentiment
Although the miserable result from the German ZEW economic sentiment survey is likely to have an impact on demand for the single currency, the Pound Sterling to Euro (GBP/EUR) exchange rate is likely to hold losses given the extent of the declination. This is especially true given the complete absence of further domestic data to provoke changes.
Wednesday will see significant GBP/EUR volatility with British labour market data and Eurozone Industrial Production data due for publication.
The Pound Sterling to Euro (GBP/EUR) exchange rate reached a high of 1.3526 during Tuesday’s European session.
