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Downbeat Data Increases Chances of BoE Cut, Leaving Pound Euro (GBP/EUR) Exchange Rate Flat

November 13, 2019 - Written by John Cameron

Pound Sterling Euro (GBP/EUR) Exchange Rate Muted as Low UK Inflation Offers Households a Boost



The Pound Sterling Euro (GBP/EUR) exchange rate was left muted as UK inflation fell, leaving the pairing trading around €1.1663.

Sterling was left flat as data revealed UK inflation had fallen to an annual rate of 1.5%, its lowest level since November 2016.

While today’s data is unlikely to panic the Bank of England (BoE), policymakers could be encouraged to consider a rate cut, and commenting on this, Head of Research at Kingswood, Rupert Thomas said:

‘These numbers follow hard on the heels of the downbeat economic data released earlier in the week which showed a slowdown in underlying wage growth, a fall in employment and the weakest GDP growth since 2010.

‘Altogether, this crop of data suggests any move by the Bank of England over coming months is more likely to be a rate cut than a hike. Even so, the most likely outcome remains that the Bank remains on hold – particularly now there are signs the worst of the global economic slowdown is behind us.’

However, the decrease in inflation thanks to lower energy prices is likely to provide a boost to households.

Lower inflation should ease the blow of yesterday’s data that showed wage growth had slowed, meaning that real wage growth is now rising by 2.1%.

Euro (EUR) Flat as Eurozone Factory Output Bottoms Out



The single currency was left muted against the Pound on Wednesday as data revealed final German inflation edged up by 0.1% in October.

The bloc’s largest economy saw inflation slide to an annual rate of 1.1% as expected, falling further from the European Central Bank’s (ECB) target.

Further data for the bloc revealed Eurozone industrial production edged up slightly in September.

Production rose by 0.1% suggesting the slump in factory output has bottomed out which likely provided the single currency with a slight upswing of support.

However, annual production still declined by -1.7%, falling for the 11th consecutive month which likely limited gains.

UK Election Optimism Offsets Weak Data



The Pound remained steady against the single currency despite an influx of disappointing UK data, including yesterday’s weak employment and wage growth data.

GBP continued to benefit from Monday’s news that the Brexit Party would not contest Tory seats won in the 2017 election.

This increased the chances the Conservative Party would retain power and mean a higher probability of Prime Minister Boris Johnson taking the UK out of the European Union by the end of January.

Sterling received a further boost on Tuesday after YouGov released its latest poll showing the Conservatives had a 14-point lead over Jeremy Corbyn’s Labour Party.

Commenting on the upswing in election optimism, Derek Halpenny, MUFG’s head of research noted:

‘The Pound is likely to remain well supported as long as the political news-flow pointing to a Tory majority continues. [But] the upside is limited.

‘There is a price to pay for these gains – a promised short transition period that will weigh on sentiment and with the economy set to weaken further as household spending weakens, Pound gains will be contained.’

Pound Euro Outlook: Will Weak German GDP Weigh on EUR?



Looking to Thursday, the Euro (EUR) could slide against the Pound (GBP) following the release of Germany’s Q3 GDP data.

If flash data reveals growth in the bloc’s largest economy has contracted for the second quarter in a row, single currency sentiment is likely to slump.

Meanwhile, Sterling could be provided with an upswing of support following the release of October’s UK retail sales.

If sales rebound after stagnating in September, it will likely cause the Pound Euro (GBP/EUR) exchange rate to edge higher.






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