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Euro Pound Exchange Rate Sees Limited Support in Spite of Positive Eurozone Inflation Reading

Positive Eurozone Inflation Fails to Boost Euro Pound Exchange Rate

The Eurozone inflation rate’s return to positive territory struggled to shore up the Euro to Pound Sterling (EUR/GBP) exchange rate today.

While inflation better forecasts, rising from -0.3% to 0.9% on the year in January, the Euro (EUR) struggled to find traction in the wake of the data.

Although a positive headline inflation reading could give the European Central Bank (ECB) less cause for dovishness in the months ahead this was not enough to improve market confidence.

With inflation still a long way short of the ECB’s 2% target and as growth across the Eurozone slows worries over the economic outlook weighed heavily on the single currency.

Pound Sterling (GBP) found some limited support, meanwhile, thanks to a surprise upward revision to January’s finalised UK services PMI.

Euro Under Pressure Ahead of ECB Economic Bulletin

The release of the latest ECB economic bulletin could provoke volatility for EUR exchange rates tomorrow, though.

If the bulletin indicates a greater sense of anxiety over the health of the Eurozone economy this could leave the Euro vulnerable to renewed selling pressure.

As long as markets see reason to bet that further monetary loosening measures could be on the horizon support for EUR exchange rates may prove limited.

December’s Eurozone retail sales figures may offer the single currency some support, however.

Forecasts point towards a solid month of growth for retail sales over the holiday period, offsetting some of the sharp -6.1% decline on the month seen in November.

Evidence of increased consumer confidence may help to lift the appeal of the Euro, even as the odds of an imminent double-dip recession remain.

On the other hand, if sales contract once again this could give investors further reason to sell out of the single currency ahead of the weekend.

Bank of England Policy Announcement Set to Provoke GBP Exchange Rate Volatility

GBP exchange rates are likely to experience further volatility on Thursday, meanwhile, in the wake of the Bank of England’s (BoE) February rate decision.

Even though the BoE does not appear likely to enact any policy changes at this stage the meeting could still prompt fresh Pound weakness.

Any signal from policymakers indicating greater anxiety over the health of the UK economy may leave the Pound trending lower across the board.

However, signs of increased optimism in the accompanying policymaker commentary could help to drag the EUR/GBP exchange rate lower.

Signs of the BoE’s willingness to remain on hold for the foreseeable future and any expression of confidence in the economic outlook may well give the Pound a solid boost against its rivals.