Eurozone Inflation Disappoints, Euro Pound (EUR/GBP) Exchange Rate Extends Decline
The Euro Pound (EUR/GBP) exchange rate tumbled on Wednesday as markets responded to a poor Eurozone inflation print and renewed hopes that Britain will soon agree a transition deal with Brussels.
On the inflation front, the bloc’s December core inflation reading (excluding volatile prices of things like energy and food) was confirmed to have remained stagnant at 0.9% year-on-year, whilst the overall figure slipped from 1.5% to 1.4%, well below the European Central Bank’s (ECB) target range.
ECB Chief Mario Draghi has previously stated that he expects inflation to pull back as a result of a drop in energy prices, but to head back towards the ECB’s 2% target in time.
Markets are somewhat unconvinced by this optimism, however, and are moving away from the single currency.
Pound (GBP) Exchange Rates Climb despite Growing Pressure on Carillion Collapse
Pound Sterling (GBP) exchange rates were able to climb today despite the fact that the UK government is coming under pressure to deal with the collapse of UK construction giant Carillion.
Carillion directly employed some 20,000 workers, all jobs that are now under significant threat. This figure is dwarfed, however, by the ultimate employment of the firm’s supply chain, with as many as 30,000 small businesses thought to be owed money.
These concerns grew as the liquidator PricewaterhouseCoopers announced that it will not pay any bills for ‘goods/services provided before the liquidation date’.
The ultimate impact of this collapse waits to be seen, though the potential loss of a huge number of jobs does not bode well for the medium-term outlook of the Pound.
This news was, nonetheless, ineffective in pushing EUR/GBP lower, with markets seemingly growing slightly more bullish on the Pound in light of optimism on the possibility of a soft Brexit.
EUR/GBP Exchange Rate Forecast: Brexit Bulls Gain Favour
The outlook for the Euro Pound (EUR/GBP) exchange rate is looking slightly gloomy moving ahead.
Whilst the bloc’s economy continues to demonstrate a remarkable recovery, the outlook regarding Britain’s Brexit prospects has slowly grown more positive.
Recent news that finance ministers from Spain and the Netherlands are willing to back a soft Brexit deal has driven some to question whether the EU’s insistence that one cannot pick and choose a bespoke Brexit deal is true.
Beyond this, the Bank of England (BoE) is currently regarded as the more hawkish option compared to the ECB, particularly with UK inflation still sitting above the central bank’s target range.
It is, however, still largely unclear what the UK’s relationship with the EU will be after Brexit day 2019, with the transitionary phase to be discussed when the EU27’s ambassadors reconvene on Thursday.
If these meetings result in significant changes to the EU’s draft position then the EUR/GBP exchange rate will likely become increasingly volatile.