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EUR GBP Exchange Rate Tumbles as UK CPI Data sees Unexpected Increase

European Union news

  • UK Inflation Rises to 1% – Partly attributed to fall in value of Pound (GBP) exchange rates.
  • Euro Founder Pessimistic – Says Euro ‘house of cards’ is set to collapse.
  • ECB QE Tapering Speculation – Euro (EUR) Volatile as opinion is split.
  • EUR GBP Data Forecast – Pound may rise on Wednesday’s unemployment reports.

The EUR GBP exchange rate has largely held around the 0.90 mark for the last week as ‘Brexit’ fears weighed on the Pound (GBP) but the Euro tumbled this morning as UK inflation rose by more than expected.

CPI Data Provides Slight Boost for Pound (GBP) Exchange Rates

The Pound made gains against the Euro (GBP EUR) this morning following better than predicted consumer price data. The data showed that inflation rose to 1.0%, nudging past predictions of a 0.9% rise.

Senior economic adviser at PwC Andrew Sentence predicts that inflation may rise even further as we head into 2017. He said;

‘Inflation has risen to 1.0 percent this month, as expected. Higher import prices are feeding through to consumers because of the fall in sterling since the EU referendum vote. This latest rise, however, is just the tip of the inflationary iceberg which is coming our way. Over the course of next year, we should expect inflation to rise above the Bank of England’s 2 percent target.’

Sterling’s recovery is likely to be capped however as ‘Brexit’ market anxiety looks set to remain for the foreseeable future, dragging on the Pound and boosting EUR GBP as investors fear the possibility of a ‘hard Brexit’ knocking the UK out of the single market.

Founding Economist Predicts downfall of Euro (EUR)

Otmar Issing, one of the key architects behind the creation of the single currency and the European Central Bank’s (ECB) first chief economist has warned that the Euro is a ‘house of cards’ that is likely to collapse.

He claims that the ECB is overextending and is on a ‘slippery slope’ following the bailing out of bankrupt countries in violation of treaties, while also stating that the Euro project has been hampered by political muddling and countries working towards their own agenda.

Confidence in the Euro appears to remain high however as the EUR GBP exchange rate remains around the 0.89 mark at the time of writing.

QE Tapering Speculation Could Cause Volatility for the Euro Pound Currency Pair

Increasing speculation that the ECB will begin to wind down its quantitative easing programme early has given the Euro Pound exchange rate a slight boost recently as investors anticipate an end to the ECB’s bond-buying before the end of March 2017.

However the Euro may tumble if, as Bloomberg predicts, ECB president Mario Draghi embraces more QE, prolonging the programme into the latter half of 2017 to ensure that Eurozone inflation remains above 1.5%.

EUR GBP Exchange Rate Forecast: Wednesday’s Data to Boost Pound?

A lack of data for the Euro for the next couple of day will hamper any potential rises in the EUR GBP exchange rate. Meanwhile, the Pound may advance if the UK’s unemployment data shows some improvement when it is released on Wednesday, although forecasts currently point to the unemployment rate remaining either the same or higher than the previous month.

The next ECH rate decision is set for Thursday but is unlikely to have any major effect on the Euro as markets already predict that the ECB will not vote to change monetary policy and will hold interest rates at the current ultra-low levels.

Current Interbank Exchange Rates

At the time of writing the EUR GBP exchange rate was trending around 0.89 and the GBP EUR exchange rate was trending around 1.11.