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EUR/GBP and EUR/USD Exchange Rates set for Seventh Weekly Drop on Inflation Data

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The Euro is on course to make a seventh weekly decline against the Pound and US Dollar, the longest run of declines seen for more than ten years as pressure upon the European Central Bank (ECB) to introduce new monetary easing measures increased as Eurozone inflation fell to 0.3%.

Grim news for the Eurozone kept on coming on Friday as a retail sales report out of Germany showed that sales declined by -1.4% in July a figure which was worse than the forecasted rise of 0.1% and wiped out Junes rise of 1%.

Retail sales data out of Spain also disappointed.

Following on from the retail sales data came the latest unemployment report for Italy.

The jobless rate in the Eurozone’s third largest economy increased from June’s figure of 12.3% to 12.6% in July.

Investors then turned their attention to the days eagerly awaited regional inflation data.

According to the data released by Eurostat, Consumer prices in the region rose by 0.3% in August, down from the 0.4% increase seen in the preceding month.

The figure was the weakest recorded since October 2009 and widely matched economist forecasts.

‘This latest inflation reading is surely the demise for the ECB staff’s existing forecasts. Since the moment those projections were published in June we have been arguing that the ECB’s baseline profile contained more than a tincture of rose-tinted optimism: the belief that inflation this year would manage to average 0.7%, and would subsequently eke out an ‘improvement’ to 1.1% in 2015, seemed fanciful to us from the very outset. In addition, in light of subsequent outturns, our more grim prognostication has been largely vindicated (our own forecasts are annual averages of 0.5% and 0.8% respectively). As a consequence, it is now highly likely (in our view) that those staff projections will be cut down to size next week,’ said James Ashley, Chief European Economist at RBC Capital Markets.

The core inflation rate, which strips out volatile items such as energy, food, tobacco and alcohol, rose to 0.9% from 0.8% in July.

The inflation report increases pressure upon the ECB to introduce more stimulus measures when policy makers gather next week for its latest meeting.

Economists have raised their bets that the Central Bank will introduce a quantitative easing programme and possibly another interest rate cut in order to try to stimulate growth and tackle the rising threat of deflation.

Unemployment in the 18-member Eurozone remained steady at close to record highs suggesting that any sign of an economic recovery has failed to translate into job creation. With recent data releases coming out negatively virtually one after the other the unemployment rate is likely to remain high or even get worse.

‘This is yet another bad indicator of the health of the Eurozone economy. As evey month passes we get closer to the dread of deflation and Draghi looks more and more like Nero fiddling while Rome burns,’ said Luke Bartholomew, an economist from Aberdeen Asset Management.

Euro Exchange Rates

[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,,US Dollar,1.3186 ,
Euro,,British Pound,0.7986,
Euro,,Canadian Dollar,1.4482 ,
Euro,,Australian Dollar,1.4207 ,

As of 12:00 pm GMT