Pound Euro Exchange Rate Static Following Drop In UK Inflation

February 15, 2012 - Written by James Fuller

STORY LINK Pound Euro Exchange Rate Static Following Drop In UK Inflation

The Pound Euro exchange rate (GBP EUR) is 1.1941.

Yesterday’s session in the currency markets was once again dominated by headlines generated by a Ratings Agency – this time it was Moody’s who stole the limelight, downgrading the credit ratings of Italy, Spain, Portugal, Malta, Slovakia and Slovenia in one fell swoop. The leading credit ratings agency attributed their action to concerns over the future prospects for economic growth in the region, sparking debate about whether austerity measures, which are being enforced by the EU/IMF/ECB ‘Troika’ upon several European sovereign states, are proving overly draconian.

Moody’s also placed the UK, France and Austria on a watch, which implies that there is a 30% chance that they will be downgraded in the near-term. There was further potentially harmful news for Sterling yesterday morning, when January’s UK CPI Inflation data showed a dramatic drop-off in the rate of British price rises. The annualised CPI figure printed at 3.6%, dipping from December’s year-on-year showing of 4.2%. The downward move was anticipated by analysts and was attributed to the UK VAT rise from 17.5% to 20.0%, which took place in January 2011 and has now worked its way out of the 12-month rolling figure.

The latest German ZEW Survey, released later yesterday morning, showed a surprise recovery in sentiment from market analysts in the eurozone’s powerhouse economy, beating expectations of a negative 11.8 print to show at a positive figure of 5.4. It appears that Germany’s economic miracle continues, in spite of the debt troubles which prevail in many of the eurozone’s peripheral states.

All this added up to a day of tight trading for the GBP EUR exchange rate, with a spread of roughly 0.5c between the intraday high and low. This could all change today, due to a heavy data schedule in the eurozone and in the UK. European highlights come in the form of German and whole-of-eurozone Q4 GDP data. Meanwhile, UK employment data for January and the Bank of England’s Quarterly Inflation Report steal the show in the UK.

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