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EUR GBP Exchange Rates Slide as Markets Respond to Poor EU Inflation

  • EUR GBP Slides to 0.8912 – GBP EUR Climbs to 1.1216
  • Eurozone Inflation Proves Poor – EUR Tumbles
  • UK Retail Sales Beat Forecasts – GBP Takes the Lead

The EUR GBP exchange rate fell today as markets responded to a disappointing slide in the Eurozone consumer price index (CPI).

Eurozone Inflation Disappoints, EUR Exchange Rates Slide

The Eurozone’s headline inflation rate printed at 1.4% in October, matching the forecast of a 1.4% rise but slipping down from the previous period’s 1.5%.

The month-on-month figure printed at 0.1%, down from September’s 0.4% and below the forecast of 0.2%.

This news hurt demand for the single currency two-fold; on one hand, it is regarded as a failure of the European Central Bank (ECB) in pushing inflation towards the target level of 2% – even if a drop was expected.

On the other hand, is further diminishes the prospect of a rate hike from the ECB, with the bank already being regarded as dovish moving into 2018.

As a result the EUR GBP exchange rate promptly switched back to the Pound’s favour, with the UK’s above-forecast levels of inflation and better-than-expected retail sales figures today positioning the Pound as the more attractive option.

UK Retail Sales Beat Forecasts, GBP Exchange Rates Climb

Year-on-year UK retail sales fell for the first time since 2013, according to data today from the Office for National Statistics (ONS).

The annual figure contracted -0.3% in October, far below the previous figure’s upwardly revised 1.3% but a less severe drop than the -0.4% that was forecast.

Monthly, however, a rise was demonstrated, this time at 0.3%, beating the forecast of a 0.2% climb and September’s disappointing -0.7% contraction.

Whilst a drop occurred annually, the fact that it proved better than expected and that the monthly figure proved positive has left market demand for the Pound slightly bolstered.

Kate Davies, ONS Statistician shared this sentiment, stating:

‘We are continuing to see an underlying picture of steady growth in retail sales, although this October suffered in comparison with a very strong October in 2016′.

Nonetheless, it is clear from retail expenditure that limp wage growth and inflation remaining high continues to apply significant pressure to UK households.

EUR GBP Forecast: Speeches from BoE Carney, Cunliffe, Broadbent Imminent

Various members of the Bank of England (BoE) are due to give speeches today, including bank Governor Mark Carney and Monetary Policy Committee (MPC) members Ben Broadbent and Jon Cunliffe.

Broadbent also spoke yesterday along with Carney, asserting somewhat hawkishly that the UK will likely raise interest rates at least once in 2018.

Carney’s comments were also quite positive, asserting that the BoE is ready to ensure that inflation stays low and that the banks stay strong, regardless of ‘the outcomes of Brexit negotiations’.

Their attitudes will be scrutinised once again today, with any indication that the bank is shifting dovishly liable to put the Pound under pressure and any identified hawkish sentiment liable to further cement its gains.

For the Eurozone, Friday will feature a speech from ECB Governor Mario Draghi, though after today’s disappointing Eurozone inflation figures markets are not expecting his sentiment to be anything but dovish.

Indeed, the poor inflation readings could apply even more pressure for the ECB to further delay the tapering of its quantitative easing scheme – an eventuality that would hurt demand for the single currency even more.