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EUR/GBP and EUR/USD Exchange Rate weakened as Germany Slides towards Deflation

The Euro (EUR) weakened against the Pound (GBP) and US Dollar (USD) on Thursday after positive Eurozone data released early in the session was countered by another dismal inflation report out of Germany, which did little to ease fears over deflation.

Data released early in the session initially offered some support to the single currency as it showed that unemployment eased slightly in Germany this month. The data showed that the number of Germans out of work fell by 22,000, better than the 5,000-increase forecast by economists. The nation’s overall unemployment rate remained steady at 6.7%.

A separate report showed that the Spanish economy expanded by 0.5% in the third quarter and expanded by 1.6% on an annual basis, the figures matched expectations.

Data also showed that economic sentiment across the Eurozone improved unexpectedly in October. The report released by the European Commission showed that economic sentiment across the currency bloc increased to a reading of 100.7, from 99.9. Economists had been expecting sentiment to fall to 99.7. Any figure above 100 indicates optimism whilst a number below means pessimism.

Any gains achieved by the Euro on the back of those positive data releases was shortlived after the USA posted better than expected GDP data and German inflation data increased concerns over low inflation in the Eurozone.

Inflation in Germany, the Eurozone’s largest economy, remains well below the ECB target of 2% and stayed at 0.8% for a four consecutive month in October. In its flash estimate based on consumer price data for six key German states, the federal statistics office Destatis calculated that German inflation stood at just 0.8 per cent year-on-year last month, unchanged since July.

The last time inflation in Germany was lower than 0.8% was in February 2010.

Also spooking investors is mounting concerns over Greece. With the popularity of the Troika, backed Greek government being at an all time low fears are raising that upcoming presidential elections could lead to the victory of the left-wing SYRIZA party. The group could force a snap general election.

‘Germany is sliding into deflation. That would have very negative consequences for the whole Eurozone. There are political risks due to new elections coming in Greece. That is quite enough to keep investors worried,’ said Alessandro Giansanti, senior rates strategist at ING Group NV.

Attention is now focused on Friday Eurozone Inflation and Unemployment data. A further fall in the regions inflation rate and fears over a region wide slide towards deflation will increase. Unemployment meanwhile is expected to remain at the high level of 11.5%.

Euro Exchange Rate News:

[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,,US Dollar,1.2613 ,
Euro,,British Pound,0.7875 ,
Euro,,Australian Dollar,1.4310 ,
Euro,,Canadian Dollar,1.4122 ,

As of 15:25 pm GMT