EUR/GBP Strengthens as ECB Confidence in Inflation Rises
The Euro Pound (EUR/GBP) exchange rate is climbing this afternoon in the wake of the European Central Bank’s (ECB) latest rate decision.
At the time of writing EUR/GBP is now around 0.24% up from this morning’s opening levels, although some volatility may be prompted later on as investors reflect on the ECB’s following statement.
Euro (EUR) Climbs as ECB Inflation Optimism Grows
The ECB held its first policy meeting of 2018 today, with the bank choosing to leave interest rates and its stimulus programme unchanged this month.
While this move was not unexpected recent speculation had lead some investors to hope for a more hawkish response from the ECB, especially given the recent growth in the Eurozone.
In his press conference following the decision ECB Governor, Mario Draghi suggested that it was still too early to ‘declare victory’, as he commented on the bank’s commitment to its substantial bond-buying programme.
However despite some concerns about the recent jump in EUR/USD Draghi suggested that the bank’s outlook on inflation was increasingly optimistic.
‘The strong cyclical momentum, the ongoing reduction of economic slack, and increasing capacity to utilisation strengthened further our confidence that inflation will converge towards our inflation aim of below but close to 2 percent’
Investors will be hopeful that this renewed confidence in inflation may led the bank to consider tightening its monetary policy later in the year and possibly even thinking about hiking interest rates.
Pound (GBP) Pressured by Fall in Retail Activity
Meanwhile the Pound faced some pressure earlier this morning as reports suggest that UK retailers suffered a drop in activity at the start of 2018.
According to Confederation of British Industry’s (CBI), post-Christmas retail sales slid more than expected as its Distributive trades index tumbled from 20 to 12 in January.
The survey revealed that retailers suffered the largest post-Christmas slowdown in sales in over four years, while new orders to suppliers unexpectedly fell.
While online sales proved to be a little more robust, analysts warn that sales may continue to suffer in 2018 if the financial pressures on consumers does not lift.
Anna Leach, CBI Head of Economic Intelligence, said;
‘Retailers have seen fairly modest sales growth this month overall, but it is online retailers who have set the pace during the January sales.
‘Household spending will remain under pressure this year from higher inflation and low wage growth, which will continue to weigh on sales growth in the retail sector.’
EUR/GBP Forecast: Robust UK GDP Figures to Bolster Sterling?
Looking ahead the EUR/GBP exchange rate may slide on Friday as the UK’s publishes its latest GDP figures.
Economists forecast that economic growth in the UK will have held at a robust 0.4 per cent in the fourth quarter.
However possibly denting the Pound’s gains will be the accompanying annualised figures which are expected to show that year-on-year growth slowed from 1.7% to 1.4% in 2017.
Meanwhile the Euro may cede some ground tomorrow due to a lull in notable data, with investors likely to reflect on Draghi’s comments regarding inflation