With yesterday’s unexpectedly impressive UK retail sales report supporting the Pound, the Euro to Pound currency pairing began the local session close to a three-week low.
Sterling gains were consolidated as a measure of UK consumer confidence jumped to its best level since before the onset of the global economic crisis.
The reading of -5 was the highest sentiment figure recorded since mid-2007.
The Euro was also softer against the US Dollar, having posted three days of losses against its US counterpart on European Central Bank policy speculation.
After Bundesbank chief Jens Weidmann hinted that negative interest rates might be introduced, another ECB official (Luis Maria Linde) commented that deflation risks are being taken very seriously and that bringing in additional stimulus is a possibility.
The Euro consequently weakened against all 16 of its most traded currency counterparts.
The common currency’s downward move prompted this response from one London-based forex strategist; ‘Whether and how the ECB will address Eurozone deflation or disinflation risks in the months ahead will be a key driver for the Euro. The ECB could be forced into unconventional policies this year, which could be a game changer for the Euro.’
While the Euro to Pound (EUR/GBP) pairing was little-changed after data showed that Germany’s import price index unexpectedly declined, the Euro did garner some slight support from a surprising gain in Eurozone consumer confidence.
The Eurozone’s economic sentiment gauge rose to its strongest level since 2011 in March, rallying from 101.2 to 102.4 rather than coming in at 101.4 as expected.
A measure of consumer confidence for the currency bloc held at -9.3 while Eurozone industrial confidence advanced from -3.5 to -3.3 and services confidence strengthened from 3.3 to 4.2.
Given the recent Crimea tensions and weak data emerging from China, the jump in economic confidence was a pleasant surprise.
However, Euro gains were limited as investors looked ahead to today’s German inflation data.
If the report confirms that consumer price gains in the Eurozone’s largest economy slowed in March (adding to the case for the ECB introducing additional stimulus next week) the Euro could tumble to fresh lows before the weekend.
Next week there are several significant Eurozone reports to be aware of, including inflation data for the currency bloc, German employment figures, Eurozone/German manufacturing PMI, Eurozone employment figures and German factory orders.
The European Central Bank’s rate decision (taking place on Thursday) is likely to generate significant currency market volatility.
Euro (EUR) Exchange Rates
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