Pound Sterling to Euro Exchange Rate Forecast Hinges On UK & Eurozone Inflation Data

Modified: Tuesday, 16 July 2013 08:57 BST - Written by David Woodsmith

STORY LINK Pound Sterling to Euro Exchange Rate Forecast Hinges On UK & Eurozone Inflation Data

Investors’ forecasts regarding the future direction of monetary policy from the world’s leading central banks continues to inform price action in the global currency markets.

Yesterday’s stand-out data release came in the States with last month’s Advance Retail Sales figures. The June shop sales numbers showed an unexpected drop from May’s counterpart reading of 0.5%. The showing of 0.4% was well below the expected 0.8% reading, suggesting that Federal Reserve Chairman Ben Bernanke’s assertion of last Wednesday that the data emanating from the real economy in the States was affording America’s tentative economic recovery an unrealistically positive lustre. The US Dollar lost ground in the aftermath of the release, sending the Pound to US Dollar exchange rate (currency : GBP USD) back up above the 1.5100 threshold in afternoon trading; the pair had dropped close to the 1.5000 level shortly after the European trading session had got underway.

This morning’s brings two key data releases from the UK and the eurozone. Britain leads the way with June’s Consumer Price Index inflation data. Analysts are anticipating that the headline annualised number will show an increase to 3.0% - if this proves to be the case, then the bank of England’s hands will effectively be bound with regards to any further near-term loosening of its monetary policy. This in turn may provide renewed support for Sterling, potentially sending the Pound to euro exchange rate (currency : GBP EUR) back up towards 1.1700.

However, with the whole of eurozone CPI inflation figure due out only 30 minutes after its UK counterpart, the potential for a rapid reversal of any UK data-driven forward move for GBP EUR exists. The European Central Bank suggested less than two weeks ago that the eurozones’s interest rates will remain at an ultra-low level for some time to come. However, any hint that Europe’s prices are insidiously creeping higher could see GBP EUR fall back down towards its 2013 low in the 1.13900s once more.

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