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EUR GBP Investors Unfazed by German Inflation Results

  • EUR GBP Exchange Rate Hits Weekly High – Remains above key 0.90 level
  • Strong US Dollar (USD) Weighs on Euro – Italian data fails to boost Euro demand
  • EUR Update: German Inflation Meets Expectations – Euro sees little change
  • GBP Forecast: UK Inflation Next Week – As well as UK wage growth

Updated 16:51 BST 11/08/2017:

The Euro saw little change in movement following the publication of July’s final Consumer Price Index (CPI) results from Germany, France, Italy and Spain.

All the inflation results met expectations, indicating Eurozone inflation was gradually improving as expected.

However, towards the end of the week’s European session, the EUR GBP exchange rate jumped due to a US Dollar (USD) selloff.

The Euro benefitted from the weak ‘Greenback’ and EUR GBP hit a high of 0.9115 – its best level all year.

The pair looks to end the week above its opening levels and investors will focus on UK inflation and Eurozone growth data next week.

[Published 06:00 BST 11/08/2017]

This week’s UK data has failed to boost the Pound, but a stronger US Dollar (USD) has weighed on the Euro, leaving the EUR GBP exchange rate trending in a tight region in recent sessions. Inflation data from major Eurozone member nations could influence the Euro today.

EUR GBP began the week trading at around 0.9030. After briefly touching on a seven-year-high of 0.9083 on Tuesday, the pair slipped below the week’s opening levels but has held above the key level of 0.90.

Euro (EUR) Limited by US Dollar (USD) Strength

Recent Eurozone data has failed to notably influence Euro exchange rate movement.

Most of the data has been too low influence, and Germany’s trade report from June was generally disappointing.

Italy’s industrial production results from June beat expectations in both monthly and yearly prints, and Italy’s latest trade balance report also impressed.

Eurozone data has been mixed, but investors still generally expect the European Central Bank (ECB) to announce adjustments to quantitative easing (QE) before the end of the year.

According to a Reuters poll of 50 economists, 28 of them expect the ECB will make an announcement of some kind on quantitative easing in September, rather than October.

However, despite this Euro optimism the shared currency has weakened, as markets become risk-averse.

Rising geopolitical tensions between the US and North Korea have spooked markets and caused traders to buy up ‘safe haven’ currencies like the US Dollar (USD).

As the Euro has a negative correlation to the US Dollar, rising ‘Greenback’ strength has kept the shared currency under pressure this week.

Pound (GBP) Fails to Find Support in Recent Data

Despite a weaker Euro, the Pound has been unable to capitalise due to a lack of reasons to buy the British currency since August’s dovish Bank of England (BoE) meeting.

This week’s UK economist calendar was quiet overall and Thursday’s UK datasets did little to alter the Pound’s trajectory, as most of it was underwhelming.

Britain’s June industrial production figures beat expectations and manufacturing merely met forecasts, while both construction and trade data fell well short.

June’s UK construction output report came in at 0.9%, despite being forecast to jump to 1.9%. The previous figure was also revised lower, from -0.3% to -0.5%.

The biggest disappointment was June’s trade deficit, which unexpectedly deepened from £-2.52b to a nine-month-low of £-4.56b. This was largely because June saw Britain’s worst export figures since June 2016.

On top of this, NIESR also published its latest UK growth rate projections. NIESR forecasts that Britain’s economy only grew at 0.2% from May to July, down from the 0.3% growth of April to June.

This would mean UK growth slowed in July, leaving British growth closer to stagnation.

According to Amit Kara, head of UK macroeconomic Forecasting at NIESR;

‘The service sector, which was the main driver for economic growth in the second quarter, appears to have slowed. We see a modest recovery in the second half of this year in response to strengthening global growth and a weaker currency, but on the flip side, consumer spending is likely to be weighed down by weak wage growth and investment spending held back by Brexit-related uncertainty.’

EUR GBP Forecast: German Inflation in Focus

Friday will see the publication of most of this week’s most notable Eurozone ecostats. July’s final Consumer Price Index (CPI) results for Germany, France, Spain and Italy will come in throughout the morning.

Of particular importance will be Germany’s final July inflation report, which is projected to improve slightly from 1.6% to 1.7% year-on-year and from 0.2% to 0.4% month-on-month.

If German inflation beats expectations, it could boost speculation that the European Central Bank (ECB) will become more hawkish towards the end of the year.

While the Euro’s strength could be limited by geopolitical tensions and a stronger US Dollar (USD), analysts believe the Euro is unlikely to fall far.

According to Manuel Oliveri, FX strategist from Credit Agricole;

‘The Euro has become more correlated to risk in recent weeks and sentiment is still a bit cautious though the Euro upside trend is likely to remain intact over the longer term’

As a result, depending on the strength of the day’s inflation reports the Euro could drive some late week gains (or losses) in the EUR GBP exchange rate.

The Pound is unlikely to see much big movement until next week, when the EUR GBP exchange rate will be influenced by UK inflation and wage growth data.