Pound Sterling Euro (GBP EUR) Exchange Rate Forecast Strong on Eurozone Inflation Data

Modified: Tuesday, 1 March 2016 13:00 BST - Written by David Woodsmith

STORY LINK Pound Sterling Euro (GBP EUR) Exchange Rate Forecast Strong on Eurozone Inflation Data

Disappointing Eurozone Inflation Provokes EUR Weakness Today

This morning’s whole of eurozone Consumer Price Index inflation data was the highlight of the day and its result may well have far-reaching repercussions for the euro (currency : EUR) and other major global currencies. Analysts had been anticipating a showing of 0.0%, pointing to no regional prices rises over the past 12 months, so the year-on-year outcome of -0.2% came as a blow to investors holding the euro.

The result represented a sharp decline from January’s result of 0.3%, suggesting that the euroland continues to struggle to emerge from its ongoing economic funk. Analysts blamed the shock result on the sharp move lower for global energy prices which saw the price of a barrel of Brent Crude oil slump to its lowest level for some 14 years shortly after the turn of the year, weakening inflationary pressures.

GBP/EUR Exchange Rate Back up to 1.2800s

Whatever the reason behind the move, the immediate upshot saw support for the single currency ebb, sending the Pound Sterling euro exchange rate back up into the 1.2800s, having spent the early part of the day in the 1.2600s.

However, the real move against the euro from investors may still be to come when the European Central Bank (ECB) announces its latest monetary policy decision on Thursday 10th March. ECB

President Mario Draghi has dropped heavy hints during the period since Christmas that he favours a deepening of his Bank’s controversial €60bn per month Quantitative Easing programme. If the ECB does indeed opt to extend QE to perhaps €70bn or €80bn per month then most investors expect that the Pound Sterling euro exchange rate will settle back into the middle part of the 1.3000 – 1.4000 range in the short to medium term.

Holger Sandte of Nordea expanded on this theme earlier, noting that, ‘deflation would be a disaster for the euro area as the burden of high debt would increase. Therefore, the ECB will continue easing monetary policy significantly. But no matter what the ECB decides to do on 10 March, inflation is likely to hover around zero during the next few months before it picks up - if oil prices behave well.’

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TAGS: Euro Forecasts Pound Euro Forecasts