The Euro managed to advance against the Pound on Tuesday as traders grow increasingly jittery ahead of Thursday’s Scottish Referendum vote and as data showed that UK Consumer Price inflation eased last month, reducing pressure on the Bank of England to raise interest rates.
Inflation in the UK slowed to match its lowest level in five years last month as food prices were lowered due to an ongoing pricing war between the nation’s major supermarkets. The good weather seen over the summer was also adding to the lower prices as crop harvests were bountiful and flushed the market with plenty of produce.
According to the Office for National Statistics, the rate of consumer price growth eased from July’s figure of 1.6% to 1.5% in August, one of the lowest levels seen in five years.
The UK’s Retail Price Index (RPI) also saw a drop from July’s reading of 2.5% to 2.4%. Bucking the downward trend however was clothing, transport services and alcohol. All rose in price faster than the headline inflation rate.
‘Falls in the price of motor fuels and food and non alcoholic drinks produced the main downward effects on the headline rate between July and August. Petrol prices fell and prices of food fell. Offsetting these falls were upward effects from clothing, transport services and alcohol,’ said the inflation report.
House price inflation meanwhile surged in a year on year basis in July. The data showed that average house prices surged higher by 11.7%, the figure is the biggest monthly rise recorded since 2007.
Sterling dropped as economists deemed that the lower inflation rate would ease pressure upon the Bank of England to raise interest rates.CPI remains below the central bank’s target inflation rate of 2%.
‘For all the chatter, guesswork and prophecy around possible rate hikes in the UK, inflation is currently sat at a five-year low. Of course, the headline figure does not tell the full story. Core prices surprised higher by 1.9% in August; they were unaffected by the slips in oil prices or the 1.1% decline in food and booze through the past 12 months,’ said Jeremy Cook, chief economist at World First.
Also weighing upon the UK currency is mounting market jitters ahead of Thursday’s Scottish Referendum vote.
The Euro continued to make gains even as data showed that economic sentiment in Germany tumbled to a 21-month low in September, adding to concerns over the health of the Eurozone’s largest economy.
The ZEW Centre for Economic Research said that its index of German economic sentiment fell by 1.7 points to 6.9 this month from Augusts’ reading of 8.6. Analysts had expected the index to decline by 3.8 points to 4.8 in September. Current conditions meanwhile fell to 25.4, down from 44.3. Economists had been forecasting for a figure of 40.0.
Sentiment in the wider Eurozone also tumbled.
Euro Exchange Rate News:
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