EUR GBP Slides as German Inflation Disappoints

October 30, 2017 - Written by Tim Boyer

STORY LINK EUR GBP Slides as German Inflation Disappoints

The Euro Pound exchange rate tumbled today as markets react to a possible rate hike from the Bank of England (BoE) on Thursday and news that Germany’s inflation printed below expectations.

EUR Exchange Rates Slide as German Inflation Disappoints

The Euro tumbled today as markets reacted to Germany’s inflation figures - with a year-on-year print of 1.6% in October, below the forecast figure of 1.7% and the previous period’s 1.8%.

Month-on-month consumer prices fell by 0.1%.

Breaking the figures down; only food prices were demonstrated to have risen in October, with the prices of energy, rent, and services all growing less than previously.

VP Bank Chief Economist Thomas Gitzel asserted that this news justifies the European Central Bank’s (ECB) steady approach to monetary tightening, stating:

‘Considering the strong expansion (in the Eurozone) an ultra-expansive monetary policy is no longer justifiable’.

Furthermore, this news highlights the ongoing challenge that faces the ECB; that limp inflation rates continue to diminish the possibility of a rate hike.

Ultimately, the news further crippled EUR GBP today, with market anticipation of a rate hike from the BoE already holding things firmly in the Pound’s favour.

Pound Exchange Rates Soar on ‘Super Thursday’ Rate Hike Anticipation

The Pound continues to find support today on the possibility of an imminent rate hike from the BoE.

Markets have all but priced in a rate hike on Thursday from the BoE, with last week’s better than forecast UK GDP print seemingly sealing the deal for many investors.

Today’s data prints featured UK mortgage approvals and net consumer credit readings, with the number of mortgage approvals in September sliding to 66.2k, below August’s 67.23k but above the forecast of 65k.

Net consumer credit in the UK climbed by £1.606bn in September, beating the consensus of £1.5bn but still printing below the previous period’s upwardly revised £1.76bn.

These figures should not be a cause for alarm for members of the monetary policy committee, however, with the UK’s soaring inflation rate remaining the primary point of contention.

The BoE is also positioned as the more hawkish option than the ECB, leaving the Pound the more attractive choice in the short-term for investors.

EUR GBP Forecast: Eurozone GDP and CPI on the Horizon

Whilst markets await ‘Super Thursday’ there may be room in the mean-time for the single currency to claw back some losses.

Tomorrow will feature the EU’s latest GDP estimate and the Eurozone’s inflation figure, with year-on-year inflation in the Eurozone forecast to remain steady at 1.5%, and the year-on-year GDP figure expected to remain steady at 2.3%.

If these data releases print as forecast, then it is unlikely that the single currency will see much demand – especially with inflation remaining stagnant.

If they beat expectations, however, then the Euro could find some breathing space in the build-up to Thursday.

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TAGS: Euro Pound Forecasts