FOREX: Pound to Euro Lowers on UK CPI, but GBP EUR Exchange Rate Gains on BoE Minutes

August 19, 2014 - Written by John Cameron

STORY LINK FOREX: Pound to Euro Lowers on UK CPI, but GBP EUR Exchange Rate Gains on BoE Minutes

Tuesday's UK Consumer Price Index data saw the Pound to Euro and US Dollar slump. The GBP/EUR and GBP/USD exchange rate levels fell to lowest since March as domestic inflation data weighed heavily upon the Sterling.

Sterling volatility was widely forecast ahead of Wednesday's release of the Bank of England minutes. Renewed support for the British currency was found after the report revealed two of the policy makers had voted for an early interest rate rise.

Here's the latest euro FX positions within the currancy markets:

The Euro to Australian Dollar exchange rate is trading down -0.18% at 1.43007 EUR/AUD.
The Euro to Canadian Dollar exchange rate is trading down -0.14% at 1.45527 EUR/CAD.
The Euro to Pound Sterling exchange rate is trading down -0.4% at 0.79830 EUR/GBP.
The Euro to New Zealand Dollar exchange rate is trading up +0.06% at 1.58280 EUR/NZD.
The Euro to US Dollar exchange rate is trading down -0.29% at 1.32815 EUR/USD.

Earlier in the week: Analysts had forecast that the Pound to euro GBP EUR exchange rate could go higher once again as investors price-in comments from central banker Mark Carney. If this morning’s UK data beats expectations, predictions favour a renewed move towards 1.2700.

An article in the Sunday Times newspaper over the weekend has provided the Pound Sterling (currency:GBP) with a boost against the other sixteen most-actively traded global currencies. The move sent the Pound euro exchange rate up to an intraday high of 1.2522 GBP/EUR yesterday, while the Sterling US Dollar exchange rate improved to touch 1.6737 GBP/USD on the day.

The Pound Sterling was heavily sold last week after the Bank of England Quarterly Inflation Report showed that the UK central bank was slashing its domestic wage increase forecast for 2014 from 2.50% to a lowly 1.50%. However, Sunday’s interview with Bank of England Governor Mark Carney set the record straight and provided a bout of buying pressure for the Pound. In a clear reaction to the Report, the BoE Chief stated emphatically that future UK interest rate rises would not be delayed by the sluggish growth in UK wages. Alluding to a future improvement in British salaries, Carney advised readers that the members of the Bank’s monetary policy committee, ‘don’t have to wait for the fact’ in order to begin tightening monetary policy.

Lee Hardman of Tokyo Mitsubishi echoed the feeling amongst the majority of analysts when he stated yesterday that, ‘Carney’s comments that the BOE would consider raising rates before real wages are growing sustainably and that there are a wide range of views on the MPC have been interpreted less dovishly. Recent Pound weakness may prove only temporary, especially versus the euro.’

Investors holding Sterling-denominated assets do not have to wait for long for the next key risk event to hove into view; this morning’s UK Consumer Price Index data for July has all the makings of a market-moving release. Last month’s edition saw the year-on-year measure of the rate of British price rises increase to 1.9% - perilously close to the 2.0% upper end of the coalition government’s target. Most economists expect this morning’s CPI numbers to reveal a slight drop-off to 1.8%. However, a break back to 2.0% or above, which would appear eminently possible, would be likely to send the GBP EUR exchange rate Northwards towards its 2-year high of 1.2700 which it touched off last month.

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TAGS: Daily Currency Updates Dollar Pound Forecasts Euro Forecasts Euro P Forecasts