Investors Look To German CPI Inflation Numbers To Shape Pound Euro Exchange Rate As Eurozone Debt Crisis Reignites

Published: Wednesday, 26 September 2012 09:00 BST - Written by Frank Davies

STORY LINK Investors Look To German CPI Inflation Numbers To Shape Pound Euro Exchange Rate As Eurozone Debt Crisis Reignites

As today’s session gets underway, the market’s focus has returned to the euro. The single currency came under renewed selling pressure earlier this week following calls from Greece for an extension to the term of its stringent EU/IMF/ECB budgetary targets. This time, it was Greece’s Finance Minister, Yannis Stournaras who voiced his concerns that the terms of the troubled Hellenic state’s debt deal with the ‘Troika’ were unnecessarily stringent. Stournaras appeared to be committing an act of brinkmanship when he stated that his country would not be needing any additional assistance from the ‘Troika’ providing it was granted two additional years in order to hit its existing budgetary targets. Needles to say, the market was not impressed and Stournaras’ words propelled the GBP EUR exchange rate to close to 1.2600 in early trading this week.

Meanwhile, the spectre of social unrest hangs over one of the eurozone’s most debt-ridden economies, with news breaking yesterday that riot police were surrounding Madrid’s parliament in an attempt to protect legislators against anti-austerity protestors. It was all looking relatively rosy for Spain in the latter part of last week, following a strong uptake for the Iberian state’s latest bond auction. However, if evidence begins to emerge that civil disorder is on the cards in Spain, then the single currency could suffer a sharp bout of selling pressure.

Elsewhere, IMF Director Christine Lagarde threw fuel onto the eurozone debt fire yesterday, by insisting that the EU should not countenance writing off any of Greece’s massive debts. The fact that this topic is still up for discussion suggests that a partial default for Greece still exists as an option. It will be hard for the single currency to claw back any of the losses which it has incurred against Sterling in the short-to-medium term whilst this possibility exists.

Looking ahead to today’s data schedule, the euro will be afforded further direction when this month’s German CPI Inflation data is released this afternoon. Expectations are that the figure will show that the rate of price rises is cooling in the eurozone’s behemoth economy. Anything other than a drop from August’s annualised 2.1% showing may tie the ECB’s hands regarding a near-term trimming of its key lending rate. Such an outcome could cause a firming of the single currency.

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