Pound Sterling (GBP) to Euro (EUR) Trends Flatly as UK Inflation Fails to Inspire

October 18, 2016 - Written by Tim Boyer

STORY LINK Pound Sterling (GBP) to Euro (EUR) Trends Flatly as UK Inflation Fails to Inspire

The Pound to Euro exchange rate trended weakly on Monday until a softening US Dollar and Euro allowed Sterling to climb from its worst levels. However, Tuesday’s data did little to influence GBP movement as some analysts predicted.

After closing last week just above 1.11, GBP/EUR has continued its attempts to hold above this level. Despite briefly falling as low as 1.1042 on Monday, the pair was holding above 1.11 again on Tuesday morning.

Pound (GBP) Exchange Rate Trade Unchanged after Spike in UK Inflation

Sterling has floundered near its worst 2016 levels for most of October and has been seen regularly dipping to new lows, with markets lacking the drive to send the unappealing currency higher.

That looked to continue this week, though Sterling was able to make a more solid advance from its Monday lows by Tuesday morning due to weakness in its rivals.

Tuesday’s Consumer Price Index (CPI) score was up from 0.6% to 1.0% year-on-year in September, which beat expectations of 0.8% or 0.9%.

However, this did not affect Sterling trade considerably as it followed repeated warnings from the Bank of England (BoE) that a plunge in Sterling value is likely to cause an increase in consumer prices.

The BoE has stated that it would not alter monetary policy due to this rise in inflation and as a result Sterling failed to benefit from the surprise spike in inflation.

Euro (EUR) Weaker as Investors Dial Back ECB QE Speculation

Euro (EUR) exchange rates began the week bullishly amid ignited speculation in foreign exchange markets that the European Central Bank (ECB) could be looking to taper its quantitative easing program quicker than previously expected.

However, these hopes faded on Tuesday as analysts began to project that ECB President Mario Draghi would rather make sure the effects of the program had gone the extra mile before he considered packing it away.

According to a report from Bloomberg, many economists believe that QE will actually be extended past its originally planned end-date and could be stopped in Q3-Q4 2017. This left the Euro weaker throughout the day.

GBP/EUR Exchange Rate Forecast: Wednesday Data and Thursday ECB Meet to Influence Exchange Rates

The Pound to Euro exchange rate still has plenty of movement potential left this week despite Britain’s inflation results being a bust for Sterling traders.

Wednesday’s session will see the publication of Britain’s September jobless claims scores, and employment results for the three months up to August. Eurozone construction figures will also be published.

This week’s main even though, is Thursday’s European Central Bank (ECB) decision meeting. Previously speculated to be a point where policymakers could hint at an end to quantitative easing, many are now predicting another vague stance on policy – though more optimism is expected.

Despite this, the Euro could still fall if the bank does not hint at a potential return to normalised policy, as the Euro’s recent strength may have priced that possibility in.

As Thursday will also see the publication of Britain’s September retail sales scores, GBP/EUR could advance slightly by the end of the week if UK data impresses and ECB news disappoints. This largely depends on whether Sterling is even still sensitive to economic news, or if speculation that it is an increasingly political currency turns out true.

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