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EUR GBP Exchange Rate Trends Lower Ahead of German Inflation Data

September 27, 2017 - Written by David Woodsmith

While the initial negative impact of Sunday’s German election results started to ease somewhat the Euro Pound exchange rate remained on a weaker footing.

With Chancellor Angela Merkel likely to be tied up in coalition negotiations in the near future the prospect of any greater Eurozone integration appeared to diminish.

Developments in Catalonia also gave investors little cause for confidence, with the region still pushing ahead with plans for an independence referendum in spite of determined Spanish opposition.

As the political outlook for the currency union appears rather more uncertain than previously thought the mood towards the Euro remained generally muted.

Even though Italian business and consumer confidence showed an unexpected uptick on the month in September this was not enough to shore up the EUR GBP exchange rate on Wednesday morning.

Brexit Remains Downside Risk for GBP



The appeal of the Pound picked up somewhat, meanwhile, in the wake of a surprisingly strong rebound in the CBI retail sales balance for September.

After a poor showing in August the measure leapt from -10 to 42, suggesting that consumers are continuing to spend heavily as sales rose to their highest level since December 2016.

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This bolstered confidence in the outlook of the UK economy, even though signs have suggested that this continued spending is largely due to higher levels of borrowing.

However, Sterling remains distinctly vulnerable to Brexit-based uncertainty as the latest round of negotiations are set to conclude this week.

As Christin Tuxen, Chief Analyst at Danske Bank, noted:

‘Comments from EU President Donald Tusk saying that while he feels cautiously optimistic there is no sufficient progress yet, probably also weighed on GBP as the prospects of progress in Brexit negotiations looks weak.

‘The next pivotal event for GBP will be the joint press conference with Brexit Secretary David Davis and EU’s Chief negotiator Michael Barnier on Thursday when the ongoing fourth round of Brexit negotiations ends’


Unless there are signs of a breakthrough on at least some of the key issues then the EUR GBP exchange rate could find a fresh rallying point.

Friday’s UK net consumer credit figure could also provoke jitters for the Pound, with forecasts pointing towards an uptick on the month.

Given the Bank of England’s (BoE) previous warnings over the increasing reliance on credit amongst consumers a stronger showing here could undermine the case for an imminent interest rate hike.

With markets having already priced in a high likelihood of the BoE raising interest rates before the end of the year this could weigh heavily on the Pound.

Stronger Inflation Could Prompt Euro Uptrend



While August’s Eurozone M3 money supply proved stronger than forecast this was not enough to significantly boost the single currency.

As Bert Colijn, Senior Economist at ING, commented:

‘The modest increase in loans to non-financial corporates is a positive sign for the investment recovery. Still, with an economy performing above trend, capacity utilisation nearing peaks seen in the 1990s and low interest rates, a stronger appetite for investment could be expected. The money supply grew faster than in July as M3 was back at 5% growth YoY. This was mainly because of improvements in the narrower M1, increasing from 9.1% to 9.5%. All in all, the monetary developments in the Eurozone remain accommodative, without causing a bank lending boom so far.’


Demand for the Euro could pick up, however, if tomorrow’s German consumer price index data proves encouraging.

Any increase in inflationary pressure within the Eurozone’s powerhouse economy may encourage the European Central Bank (ECB) to take a more optimistic view with regards to monetary policy.

On the other hand, if the CPI fails to show any fresh signs of strengthening then ECB policymakers are likely to maintain a less hawkish outlook.

Focus will also fall on the latest Eurozone inflation data, which could also boost the EUR GBP exchange rate if inflationary pressure across the currency union appears to be mounting.
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