The Euro to Pound (EUR/GBP) exchange rate advanced to its highest level in a week on Wednesday after the Bank of England warned that UK inflation could fall below 1% over the next six months as Eurozone weakness weighs on exports.
Earlier in the session, the Euro was weaker against the Pound exchange rate as data out of Germany showed that Wholesale Prices in the Eurozone’s largest economy fell sharply in October. The Index declined -0.6% in October, defying forecasts for a rise of 0.2%. The poor result did little to ease concerns over the strength of the Germany economy.
Sterling found support earlier in the day as data released by the London based Office for National Statistics (ONS) showed that unemployment in the UK fell by 115,000 between the months of July and September. The number of people claiming unemployment benefits also declined by 20,400 in September, marking a 24th consecutive month of declines.
The ONS said employment rose by 112,000 in the latest quarter to 30.7 million, the highest since records began in 1971. Despite that, the overall UK unemployment rate remained unchanged at 6%.
More importantly to economists another report showed that wage growth excluding bonuses increased by 1.3% in the year to September, the first time that wages have outpaced inflation for the first time in five years. Wages including bonuses also rose by 1%.
Sterling’s gains were short-lived however as the Bank of England warned in its Inflation report that inflation could fall below 1% over the course of the next six months due to falling energy, food and import prices.
The bank also cut the UK’s growth forecasts. It now expects GDP to rise by 2.9% in 2015, down from a previous forecast of 3.1%. In 2016, it forecasts that the economy will strengthen by 2.6%, down from the 2.8% forecast made in August.
The Euro was then supported by data released by Eurostat, which showed that industrial production across the 18-member currency bloc improved by 0.6% in September. The rise was just short of economist expectations for a rise of 0.7%. On a year on year basis, production increased by 0.6%.
Despite the rise economists, remain concerned over the health of the Eurozone economy with some calling on the European Central Bank to take more action to encourage growth in the region.
‘The ECB’s current approach is not working and doing more of the same will yield similarly disappointing results… the Eurozone needs more substantial, effective monetary policy stimulus- and soon. The outlook for both growth and inflation has worsened and the ECB staff macroeconomic projections will be revised down, yet again, in December,’ said Ken Wattrett an economist from BNP Paribas.
The Euro continued to make gains against the Pound on Thursday and strengthened to its best level in three weeks as the UK currency remained under pressure from the Bank of England’s inflation report and data which showed that house price growth fell sharply in October. The soft report caused investors to further reduce their bets for an interest rate hike as it eases pressure on the BoE to hike rates. The Euro meanwhile strengthened on the back of fairly positive inflation data out of France.
Euro Exchange Rate- November 13
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,,US Dollar,1.2460 ,
Euro,,British Pound,0.7917 ,
Euro,,Australian Dollar,1.4257 ,
Euro,,Canadian Dollar,1.4105 ,