EUR/GBP Exchange Rate Falls as CPI Posts 0.1% Rise
The Euro has fallen further against Pound Sterling with the release of the UK Consumer Price Index this morning, which has seen the EUR/GBP exchange rate down -0.6% to trend around 0.6992.
One of the crises currently affecting the Euro has been resolved, with Greek officials reaching an agreement with creditors in order to unlock the next €2 billion tranche of bailout funding. Despite this, the political uncertainty in Portugal (which could continue for at least six months) and the barbaric attacks on Paris continue to dampen the mood for the common currency, with the EUR/GBP currently trending at a three-and-a-half-month low.
EUR/GBP Exchange Rate Forecast: Threat of Portugal Debt Downgrade Shakes ECB Stimulus Plans
The bad news for the Eurozone continues as the focus moves away from Greece and onto Portugal following the news that Alexis Tsipras has secured more protection for homeowners by renegotiating the reforms required in order to secure new bailout funds. Of the 400,000 homeowners with bad loans, 25% are families whose income falls below the poverty line. These people will be protected from foreclosure, while the remaining 300,000 have been given a three-year protection providing they restructure their current debts with the banks.
The positive news hasn’t changed the fate of the Euro, which continues to trend marginally down against Pound Sterling. Recent warnings from credit ratings agency Fitch have placed fresh concerns on the impact of Portuguese discord, suggesting that the country is at risk of having its debts downgraded.
‘Statements so far indicate that the potential new government has little intention of adopting some of the smaller parties’ more extreme proposals (such as sovereign debt restructuring), and would maintain the Socialists’ commitment to abiding by EU fiscal rules, implying a slowdown rather than reversal of existing deficit-reduction plans,’ Fitch said in a statement.
This would have the knock-on effect of leaving fewer assets for the European Central Bank (ECB) to purchase should policymakers decide to implement the additional quantitative easing measures suggested by President Mario Draghi.
The EUR/GBP exchange rate is currently trending down in the region of 0.7021.
GBP/EUR Exchange Rate Forecast: Pound Sterling Unable to Make Significant Gains Ahead of Consumer Price Index
The GBP/EUR exchange rate is still affected by its own problems, with the Bank of England (BoE) November 5th ‘Super Thursday’ announcements dampening Pound Sterling considerably. A report which pushed inflation targets back a year and the decision not to raise interest rates for the 80th month in a row has cooled trader attitudes towards Pound Sterling, with little data available to provide an alternative viewpoint to the generally dovish outlook.
The Consumer Price Index is due out today and is expected to show that inflation is holding steady at 1.0% Year-on-Year (YoY). A pessimistic outlook on inflation has been central to the BoE’s dovish stance on interest rates, so anything other than a rise – which is highly unlikely given recent UK data – will confirm fears that a rate hike is still far away. If the US Federal Open Market Committee (FOMC) were to raise interest rates as expected in December, this might give Pound Sterling a small boost, as many believe the BoE will be more confident to act once the Fed have moved first.
The GBP/EUR exchange rate is currently trending narrowly up between 1.4207 and 1.4265.
EUR/GBP Exchange Rate Forecast: Portugal Could Have Long-Term Impact on Euro Fate
Some important data will be released this week, including the results of the Center for European Economic Research (ZEW) Economic Sentiment Survey due out today. The survey shows the percentage of financial experts who are optimistic over the direction the Eurozone economy is taking. Last month’s figures printed at 30.1, with 39% of experts holding positive economic expectations, while 52.1% anticipated no change. In the wake of such turmoil, it is unlikely that a positive result would be able to lend much strength to the Euro, with a negative result could push the common currency down against Pound Sterling even more.
For Pound Sterling, Thursday’s Retail Sales data is likely to provide the next bout of strength or weakness, with a smaller-than-previous level of growth forecast.
The EUR/GBP exchange rate is continuing yesterday’s downward trend and is currently trading between 0.7009 and 0.7033.