The Euro briefly edged higher against the Pound to tick above the 0.80 level after the UK currency was softened by a report which showed that inflation fell to its lowest rate in more than four years.
According to the Office for National Statistics, the UK’s annual rate of inflation came in at 1.5% in May, down from April’s figure of 1.8% and below economist expectations for a figure of 1.7%. The rate was the lowest seen in over four years and dampened expectations that the Bank of England will raise interest rates sooner than forecast.
The inflation report came after BoE policy maker David Miles hinted that the minutes for the banks June 5th policy meeting will show that the bank is edging closer to raising rates.
“The market has been fixated on the shift in tone from governor Carney and some comments from the usually dovish Miles overnight, but the inflation data has surprised on the downside suggesting that the BoE has a little bit more room to wait before hiking,” said a currency strategist at HSBC Holdings Plc.
The Pound then recovered most of its lost ground against the Euro after the single currency was weighed down by the release of weak ZEW economic sentiment data for Germany and the wider Eurozone.
The ZEW Institute said the German economic sentiment index fell to an 18-month low of 29.8 this month, from a reading of 33.1 in May, compared to expectations for a rise to 35.0.
For the entire Euro zone, the ZEW economic sentiment index rose to 58.4 in June, from a reading of 55.2 in May, confounding expectations for an increase to 59.6.
Against the US Dollar the Euro is holding steady as the ‘Greenback’ remains under pressure from yesterday’s announcement by the International Monetary Fund that it had cut its growth forecast for the world’s largest economy.
Euro to GBP Update – 17/06/2014
As trading progressed on Tuesday the EUR/USD fell by quarter of a cent in response to US CPI data upping the odds of a Federal Reserve interest rate hike occurring.
Although the Euro experienced fluctuations during the European session as a result of mixed ZEW economic sentiment surveys for the Eurozone and Germany, the common currency eased lower against the US Dollar after it was supported by domestic inflation figures.
The US consumer price index showed a 0.4 per cent increase in May, its biggest increase for over a year. Over the year consumer costs were 2.1 per cent higher. This data indicates that inflation could soon be running at the Federal Reserve’s target – justifying the central bank’s decision to taper its bond buying programme and adding to the argument for interest rates being raised from record lows.
The Euro continued trading in a softer position against the Pound in spite of today’s slightly disappointing UK inflation figures.
Tomorrow movement in the Euro could be triggered by construction output figures for the Eurozone. Construction output fell by 0.6 per cent in March, month-on-month, so investors will be hoping for a better result for April. The minutes from the latest Bank of England policy meeting could also impact the GBP/USD exchange rate.
Euro (EUR) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,
,US Dollar,1.3567,
Euro,,British Pound,0.7991,
Euro,,Australian Dollar,1.4498,
Euro,,New Zealand Dollar,1.5649,
Euro,,Canadian Dollar,1.4737,
[/table]
