Euro Pound Sterling (EUR/GBP) Exchange Rate Slumps despite Surprise Jump in German Inflation

April 30, 2019 - Written by John Cameron

STORY LINK Euro Pound Sterling (EUR/GBP) Exchange Rate Slumps despite Surprise Jump in German Inflation

Euro Pound (EUR/GBP) Exchange Rate Falls as German Inflation Hits ECB’s 2% Target

The Euro Pound Sterling (EUR/GBP) exchange rate slipped, and the pairing is currently trading at an inter-bank rate of £0.8611.

Data released this afternoon revealed that Germany’s Harmonized Index of Consumer Prices rose to a higher-than-forecast 2.1%.

Added to this, April’s German preliminary inflation accelerated to hit the European Central Bank’s (ECB) inflation target for the first time since November 2018.

However, reports suggest that the unexpected rise in German inflation could be due to one-off price hikes around the Easter holiday.

Commenting on this, ING Economist, Carsten Brzeski said:

‘There is no reason to draw any conclusions because we see this Easter fluctuation every year, which means there is no real big shift in core inflation, so for the ECB, in terms of any impact on policy decisions, it’s close to zero.’

Euro (EUR) Slides despite Surprise Rise in Eurozone GDP

Data released on Tuesday morning revealed that the Eurozone’s preliminary GDP rose by a higher-than-forecast 0.4% in the first quarter of 2019.

Annually, GDP rose by 1.2%, however this could do little to stop Sterling rise against the single currency.

However, while Europe’s economy is improving it is hardly booming.

Commenting on this, CIO at Close Brothers Asset Management, Nancy Curtin said:

‘Eurozone GDP figures may have provided a positive surprise for investors, but its economy is far from out of the woods. In reality, growth is still pretty anaemic, and the Eurozone’s export-led economy remains vulnerable to any global slowdown. But things are looking up; Chinese stimulus should turn into a tail wind for the region, supporting positive trends in wage growth and employment.

‘Should economic growth run out of steam once more, rather than picking up speed, a fiscal intervention or further monetary policy changes may be deemed necessary.’

Unemployment in Eurozone Slides to Decade-Low

Meanwhile, further data revealed that unemployment in the Eurozone fell to a decade low.

Unemployment edged down to 7.7% in March, the lowest level since the start of the financial crisis in September 2008.

Further data revealed that unemployment in the wider European Union fell to 6.4%, the lowest level in 19 years.

Brexit Optimism Buoys Sterling (GBP)

At the start of this week’s session, reports suggested that cross-party discussions took a positive turn towards reaching a compromise.

Labour’s Shadow Environment Secretary Sue Hayman suggested that both sides were taking a more positive tone in the discussions and called it ‘a really constructive discussion’.

Hayman also suggested that the talks have moved onto the ‘nuts and bolts’ of a potential compromise between the Conservatives and Labour.

Participants emerged with a fresh sense of Brexit optimism despite it being understood that there has been no new offer from the government.

Euro Pound Outlook: Will the EUR/GBP Exchange Rate Fall on Disappointing German Retail Sales?

Looking ahead to Wednesday, the Pound (GBP) could slide against the Euro (EUR) following the release of the UK Markit manufacturing PMI.

If data reveals that the manufacturing PMI edges down further than expected in April, Sterling could slump.

Meanwhile, the Euro could slide on Thursday following the release of Germany’s monthly retail sales.

If sales in the Eurozone’s largest economy contract further than forecast in March, the Euro Pound (EUR/GBP) exchange rate could fall.

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TAGS: Euro Pound Forecasts