Pound Euro Exchange Rate Suffers Following Higher Than Anticipated Eurozone PPI Data

Published: Wednesday, 3 October 2012 09:00 BST - Written by John Cameron

STORY LINK Pound Euro Exchange Rate Suffers Following Higher Than Anticipated Eurozone PPI Data

Yesterday’s session was a relatively quiet one in terms of data releases, with the notable exception of the Reserve Bank of Australia’s policy decision which came out late in the Asian session.

Perhaps the most significant figure published on the day proved to be the whole of eurozone Producer Price Index survey for August, which showed at an annualised 2.7%, significantly up from July’s print of 1.6%. The figure, which measures the rate at which input costs are rising for companies, is considered to be a key component of future inflation readings for an economy, as producers will invariably pass increased input costs on to their end consumers. For this reason, a jump in input costs has a tendency to work its way through into higher consumer prices a few months down the line. With endless coverage of eurozone austerity measures, social unrest and unemployment, price inflation is one economic ill which has almost dropped off the radar in recent times. However, the spectre of increasing price rises is sure to have remained at the forefront of the minds of the region’s policymakers due to its potential for causing harm to those existing on fixed incomes and the ravaging effects which it has on savings. For this reason, yesterday’s PPI number was an important one; it would appear to severely limit the European Central Bank’s ability to further loosen monetary policy in the short-to-medium term. An increase to the eurozone’s asset purchase scheme, or a further trimming of interest rates now seems unlikely.

The euro made strides against the Pound following the PPI release, sending the GBP EUR exchange rate down as low as 1.2475 by the latter part of yesterday’s European equities session. Further downside may be to come for the pair if this morning’s whole of eurozone Retail Sales figure betters analysts’ expectations of an annualised -1.9%.

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