Pound Sterling Euro Exchange Rate GBP EUR Predicted to Fall on UK Inflation Data

May 19, 2015 - Written by John Cameron

STORY LINK Pound Sterling Euro Exchange Rate GBP EUR Predicted to Fall on UK Inflation Data

This morning’s UK inflation data has held the Pound Sterling (currency:GBP) back on the day, causing the GBP EUR and GBP USD exchange rates to retrace from the near-range-topping rates which they touched during the early part of the European session. The Pound Sterling euro exchange rate was changing hands at an intraday high of 1.3986 GBP EUR before the keynote price rise numbers. Meanwhile, the GBP USD exchange rate has worked its way lower from a peak of 1.5670 down into the 1.5400s.

Analysts had been expecting the benchmark year-on-year Consumer Price Index data to once again print at 0.0%, raising the potential that, with global commodities prices edging higher once more during recent weeks, the UK economy might avoid a bout of deflation. The result of -0.1% therefore hurt the British tender on the day; it was the first time on record that the headline CPI price rise measure had printed in negative territory and Sterling lost ground as a result. CPI inflation has only been measured since the mid-1980s, but economists’ best estimate is that the last time that the pace of UK price rises was below the zero level was in the early 1960s. The news takes the pressure off the Bank of England to consider an interest rate hike any time soon, but Mark Carney took the edge off this belief when he stated that, ‘over the course of the year, as we get towards the end, inflation should start to pick up towards our 2% target’. These words have caused economic participants to price-in the outside chance of a BoE rate hike this side of Christmas – a move which would strongly favour Sterling.

Two factors from the euroland have limited the losses on the day for GBP EUR – a poor German ZEW Index and fears that Greece might be on the verge of doing something silly. Greece’s shaven-headed Finance Minister Yanis Varoufakis told a TV interviewer overnight that he expects a deal with his nation’s creditors ‘with a week’. The set-up now is that any failure to reach an agreement within this timescale would further harm the single currency.

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