Pound Euro (GBP EUR) Slides as UK Inflation Disappoints

August 15, 2017 - Written by John Cameron

STORY LINK Pound Euro (GBP EUR) Slides as UK Inflation Disappoints

The Pound to Euro exchange rate pared its gains this morning after the release of significant data prints for both the UK and Germany.

The UK’s year-on-year inflation rate remained steady at 2.6% - the same growth exhibited in June – missing expectations of 2.7%.

The prices of clothing, gas, electricity, food, household goods and non-alcoholic beverages jumped, whilst the cost of recreation and culture, restaurants, hotels and transport grew at a significantly slower pace.
The month-on-month figure printed at -0.1%, significantly lower than the 0.2% forecast but only slightly lower than June’s 0.0% inflation rate.

The Pound immediately pared some of its recent gains as a result.

German GDP Continues to Demonstrate Growth, Euro (EUR) Bolstered

The German economy demonstrated growth of 0.6% in Q2 2017, below the consensus of 0.7% and below the previous figure of 0.7%. Germany’s annual GDP printed at 2.1%, consistent with the forecast and up from the previous 2%.

The Federal Statistics Office stated that domestic demand had grown, but foreign trade had contracted for the Eurozone’s largest economy:

‘The quarter-on-quarter comparison (upon adjustment for price, seasonal and calendar variations) shows that positive contributions came from domestic demand. Final consumption expenditure of both households and general government increased markedly... According to provisional calculations, the development of foreign trade, however, had a downward effect on growth because the price-adjusted quarter-on-quarter increase in imports was considerably larger than that of exports’.

The Euro capitalised on this news, gaining on Sterling’s current weakness caused by the disappointing inflation figures.

GBP EUR Forecast: GBP EUR Liable to Drop Further if Eurozone GDP Estimates Prove Positive

The Pound Euro exchange rate could be set to prolong its losses tomorrow if the Eurozone’s overall Q2 GDP estimates prove positive.

The current forecast is that the Eurozone’s 2nd year-on-year GDP estimate will come in at 2.1%, up from the previous 1.9%, whilst the quarter-on-quarter estimate will print at 0.6%, slightly up from the previous 0.5%.

Should this materialise then the Pound Euro exchange rate will likely suffer, especially if tomorrow’s UK earnings and unemployment figures disappoint. Indeed, UK wage growth is not predicted, as the higher number of applicants for jobs has not yet compelled companies to raise salaries – leaving many in the worsening squeeze of inflation.

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