The Euro to Pound Sterling (EUR/GBP) exchange rate softened on Friday due to the release of mixed economic data, which showed that the 19-member Eurozone slid further into deflation territory.
According to data released by Eurostat, the annual rate of inflation across the Eurozone came in at -0.6% in January, adding to the -0.2% decline recorded in the preceding month. The drop was sharper than economist forecast for a dip of -0.5%. The figure now means that inflation in the single currency bloc is at its lowest level since 2009. Fears over a deflationary cycle taking root in the region will be raised because of this data.
The big drag on prices was energy, down 8.9%, but food, alcohol and tobacco prices were also down by 0.1%.
The reading of Core inflation, which removes volatile aspects such as oil, food, etc…, also came in below expectations. Core inflation rose by 0.5%, down from the 0.7% recorded in December and was below the 0.8% rise expected.
Further losses for the Euro were held in check however, as a separate report measuring unemployment across the currency blog showed a slight unexpected drop.
The unemployment rate dipped to 11.4% in December, after coming in at 11.5% in November, Eurostat said. Economists had expected the rate to stay at 11.5%. The drop was probably down to increased seasonal work becoming available due to the Christmas period.
The decline in inflation will validate the European Central Banks decision to begin buying €1.1 trillion of government bonds and other debts. The ECB is hoping that the measures will increase growth and bring inflation back up to its preferred target rate of close to 2%.
Other data out of the Eurozone showed that business confidence in Spain came in weaker than forecast and Greek retail sales dropped sharply in December.
The Pound Sterling also saw movement as a response to mixed UK data, which showed that consumer confidence among British shoppers jumped to a five-year high and UK mortgage approvals increased more than expected in December.
Further gains for the UK currency were restrained however as a separate report showed that net lending to individuals fell to £2.2 billion last month from the £3.1 billion figure recorded in the preceding month. Analysts had expected net lending to individuals to hit £3.2 billion last month.
Euro Exchange Rates:
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