The Pound Sterling to Euro (GBP/EUR) exchange rate fell on Friday after German Gross Domestic Product (GDP) figures printed more favourably than forecast.
The seasonally adjusted figure rose to 1.4% from 1.2% on the year.
In addition, UK Construction Output rose by only 0.4% in December rather than the 2.7% forecast.
The Pound Sterling to Euro (GBP/EUR) exchange rate approached the end of Thursday’s session moderately higher after Bank of England (BoE) Governor Mark Carney discussed interested rates and inflation.
Carney suggested if low inflation remained a persistent problem in the UK economic recovery, that the BoE could take to hiking rates.
Carney stated: ‘Inflation pressures could be greater if lower oil prices were to provide greater stimulus to global and domestic growth or if slack in the economy were to be absorbed more quickly than in central projection.’
‘If these risks materialise, it would be appropriate for Bank Rate to increase more quickly than embodied in current market yields but the likelihood is that those increases would still be more gradual and limited than in previous tightening cycles.’
The Pound Sterling to Euro (GBP/EUR) exchange rate gained as Bank of England (BoE) Governor Mark Carney spoke on the most recent inflation report.
The Pound Sterling to Euro (GBP/EUR) exchange rate initially fell significantly in Thursday’s session despite a negative revision to final German inflation figures and unfavourable Eurozone Industrial Production stats.
Industrial Production in the Eurozone fell by -0.8% in November on the year and economists had expected the annual figure to rise into the positives in December to come in at 0.3%; however, the actual figure remained in negative territory at -0.2%.
Meanwhile, the final German Consumer Price Index slipped to -0.4% in January, below the flash reading of -0.3%.
Meanwhile, the Pound had been trading tentatively on Thursday (after hitting a seven-year high against the Euro on Wednesday), ahead of the release of the Bank of England inflation report. Some economists forecast the BoE will downplay falling inflationary expectations as falling oil prices pressure inflation lower.
Recent speculation has seen investors price in a rate hike in 2016 rather than 2015, as dovish tones from the BoE and falling inflation weighed on the UK economic outlook.
Economist David Tinsley commented: ‘We think the Monetary Policy Committee [MPC] is probably a little uncomfortable with the extent to which market expectations for tightening have slipped into 2016.’
‘But with heightened uncertainty from Greece, Governor Carney may not think it is the right time to come out with hawkish guns blazing.’
BoE Governor Carney Discusses Inflation and Interest Rate Hikes – Pound Sterling (GBP) Gains
In the press conference held by BoE Governor Mark Carney, the central bank chief suggested that inflation would come back ‘to target within two years and then grow a little further’. Carney suggested one of the main priorities of the MPC would be to get inflation back up to target, while discounting the idea that UK inflation could slip into a negative spiral like the Eurozone has witnessed.
The central banker suggested that headline inflation was likely to fall into the negative in the spring as there are few options the BoE can undertake to rectify the global oil glut. However, Carney did suggest interest rates could be cut if low inflation persists.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast
The Euro to Pound Sterling (EUR/GBP) exchange rate is likely to fluctuate significantly in coming weeks as Greece attempts to renegotiate its debt repayments to creditors in the Eurozone.
BoE officials speaking over the rest of the week could see the Pound Sterling to Euro (GBP/EUR) exchange rate fluctuate.
Friday could be a big day for Euro trading in particular, with the release of German Gross Domestic Product (GDP) stats. The seasonally adjusted figure is expected to decline from 1.2% to 1.0% in quarter four year-on-year.
Eurozone GDP will be out later in the session and if it prints out of line with forecasts the Euro could feel the impact.
The Pound Sterling to Euro (GBP/EUR) exchange rate resides at 1.3411. The Euro to Pound Sterling (EUR/GBP) exchange rate is trending in the region of 0.7407.
