Foreign Exchange Report : GBP EUR Rate Gives Up Gains Following Poor UK Inflation and Trade Numbers

July 13, 2011 - Written by John Cameron

STORY LINK Foreign Exchange Report : GBP EUR Rate Gives Up Gains Following Poor UK Inflation and Trade Numbers

The Pound Euro exchange rate (GBP EUR) is 1.1381. The Pound Dollar exchange rate (GBP USD) is 1.5927. The Pound Australian Dollar exchange rate (GBP AUD) is 1.4977.

The Pound started yesterday’s European session on a solid footing, but Sterling’s steady performance only lasted until 0930hrs BST when a raft of negative UK data was released.

The data showed that the UK’s key headline measure of inflation, the Consumer Price Index, unexpectedly dropped from an annualised 4.5% in May to 4.2% last month. Analysts have suggested that this cooling in the acceleration of UK prices was due to heavy discounting by British shops and supermarkets as they desperately competed for business.

The dip in UK price rises has made it even less likely that the Bank of England will consider a base rate hike in the short-to-medium term. Some analysts feel that the figure means that the Bank’s nine-man MPC committee will now have more scope to consider extending the UK’s Quantitative Easing scheme, which has injected £200bn of liquidity into the UK’s credit markets up to this time. Such a move would cause severe downward pressure on the Pound, particularly if other major economies decided against ramping-up their asset purchase schemes.

Further pressure was heaped on the Pound with the release of UK trade figures yesterday morning. These numbers showed that Britain’s trade deficit widened from £3.1bn in April to £4.1bn in May, putting paid to thoughts that the weak Pound is helping the UK to trade its way to recovery.

Elsewhere, leading ratings agency Moody’s moved to downgrade Ireland’s debt to ‘junk’ status overnight, adding to pressure on the Euro, while reports emanating from Monday’s Eurozone Finance Ministers’ meeting suggest that policy-makers openly discussed how a structured default by Greece might be managed. These whispers saw the GBP EUR rate trade as high as 1.1429 ahead of the poor UK data releases yesterday morning. This level is over 4c higher than GBP EUR’s 15-month low of last week, suggesting that the pair may have experienced a key reversal.


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