Pound To Euro Exchange Rate - GBP EUR Steady As UK CPI Inflation Drops

18 Jan 2012 at 8 AM - Written by Tim Boyer

STORY LINK Pound To Euro Exchange Rate - GBP EUR Steady As UK CPI Inflation Drops

The Pound Euro exchange rate (GBP EUR) is 1.2023. The Pound Dollar exchange rate (GBP USD) is 1.5360. The Pound Australian Dollar exchange rate (GBP AUD) is 1.4781.

Official figures from the UK’s Office of National Statistics, released yesterday morning, showed that British inflation dropped by a significant amount last month. The government’s numbers showed that prices rose at an annualised 4.2% during December, compared to a figure of 4.8% in November, as per analysts’ expectations.

The annualised inflation number is based on a 12-month rolling figure, so the decrease of some 0.6% in the yearly figure is likely to have been caused by a spike in the rate of price rises 13 months ago, which has now dropped out of the calculations. Analysis of the figures shows this to be the case, with November’s figure taking into account the pronounced rise in wholesale energy prices at the end of 2010. This spike had largely ‘dropped off the radar’ of yesterday’s number.

The slowing rate of British prices is in line with the Bank of England’s projections, which foresee UK CPI dropping to below the government’s stated target of 2.0% by the end of this year.

With consumer prices rising at a slower rate during 2012, there will be less reason for the Bank of England monetary policy committee to raise British interest rates from their current record-low of 0.5%, placing increased pressure on the ultra low-yielding Pound. However, the Eurozone’s counterpart headline inflation figure, also released yesterday, showed a similar reduction to the UK‘s, with price rises in the region falling from an annualised 3.0% in November, to a yearly 2.7% last month. This meant that relative yield expectations for the Eurozone over the UK, remained broadly the same as prior to yesterday’s inflation data releases in the two regions, leaving the Pound to Euro GBP EUR exchange rate to trade in a tight range between 1.2098 and 1.2017 on the day.

Meanwhile, there was some relatively positive news for Europe’s single currency with a successful Spanish government bond auction yesterday, which saw the troubled Iberian state raise almost 5bn on the bond market at lower yields than at its previous bond auction. This suggests that market participants remain relaxed about Spain’s recent credit downgrade from S&P, providing some hope for investors holding Euro-denominated assets. If positive sentiment towards the Euro picks up pace, then today’s session could see the Pound to Euro exchange rate (GBP EUR) settle below the key 1.2000 rate, sending out a bearish signal for the pair.

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