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Will Incoming Inflationary Pressures Worsen the Pound against the Euro and US Dollar?

Pounds and pence

A sharp devaluation has hit the Pound today, following the recent news that inflation is rising and average wage growth is slowing.

  • GBP EUR falls to 1.17 – GBP USD rate hits 1.24
  • UK earnings data sets alarm bells ringing – Wage growth still higher than inflation at present
  • Euro demand slides as Greek debt talks continue – EC Commissioner Moscovici in talks with Greek officials
  • US Dollar ticks up as Fed Chair points to near-term rate hike – Aftermath of Flynn resignation remains limiting factor on USD demand

Pound losses against both the Euro and the US Dollar today have been sudden and pronounced, with fears of incoming inflationary pressures becoming increasingly prevalent.

The key stats have shown average earnings including and excluding bonuses fell to 2.6% in December, against forecasts of no movement.

While Tuesday’s inflation rate rise to 1.8% still puts the speed of earnings ahead of price rises, the gap has undeniably closed today.

GBP/EUR

Rising inflation rates have also factored into Euro movements today, with the EUR climbing against the Pound but dropping against the US Dollar after annual Greek inflation jumped from 0% to 1.2% in January.

As with the UK, fears of inflationary pressures are evident in Eurozone investors, though the sporadic and battered nature of Greek wage movement makes these fears more likely to be realised in the near-term.

Meanwhile, the Euro has failed to advance after data showed a major rise in the Eurozone trade surplus from 24.4bn to 28.1bn.

With the Pound and Euro both battered by inflation rate woes, the US Dollar has advanced against both today by around 0.3%.

This comes after National Security adviser Michael Flynn was forced to resign due to previously undisclosed talks with Russian officials before he was approved in an official capacity.

While the fallout from this debacle remains a pressing issue for the Trump administration to cope with, recent comments from the Federal Reserve Chair have had a more positive impact on the USD.

Speaking on Wednesday, Janet Yellen said;

‘Waiting too long to remove accommodation would be unwise, potentially requiring [the Fed] to eventually raise rates rapidly’.

Yellen also said that a near-term rate hike could be ‘appropriate’, further raising the odds of an interest rate increase in March or May.

The Pound may close this week in a state of uncertainty, with Friday morning’s retails sales stats for January expected to slow on the year but rise on the month.

Key Eurozone data is expected ahead of Friday; Thursday morning will bring French Q4 unemployment rate results that are predicted to fall.

With the US, outside of any more Trump outbursts or further scandals, January’s inflation rate stats are due this afternoon along with retail sales figures. A drop is expected in core annual inflation while the base figure is forecast to rise. Retail sales might have the deciding influence as a monthly slowdown from 0.6% to 0.1% is on the cards.

Current GBP EUR USD Interbank Exchange Rates

At the time of writing, the Pound Euro (GBP EUR) exchange rate was trending in the region of 1.17 and the Euro Pound (EUR GBP) exchange rate was trending in the region of 0.84 today.

The Pound US Dollar (GBP USD) exchange rate was trending in the region of 1.24 and the US Dollar Pound (USD GBP) exchange rate was trending in the region of 0.80 today.

The Euro US Dollar (EUR USD) exchange rate was trending in the region of 1.05 and the US Dollar Euro (USD EUR) exchange rate was trending in the region of 0.94 today.