Euro to Pound Exchange Rate Fails to Hold Recovery on Eurozone Inflation Concerns
Investors sold the Pound (GBP) on Tuesday as the month drew to an end, but the Euro to Pound (EUR/GBP) exchange rate quickly fell back from its best levels as the latest Eurozone ecostats left the shared currency unappealing.
Last week saw EUR/GBP tumble from 0.8816 to 0.8744 and briefly touch on a half-year-low of 0.8693. Since Monday EUR/GBP has recovered slightly, briefly hitting a high of 0.8793, but by Wednesday morning the pair continued to trend near the week’s opening levels.
The Euro (EUR) was unable to capitalise on Pound weakness due to Tuesday’s Spanish inflation and Eurozone confidence survey results, which largely fell short of market expectations.
Spain’s March Consumer Price Index (CPI) projections disappointed in every notable print.
The month-on-month inflation projection remained at 0.1%, rather than rising to the expected 0.3%, while the yearly figure only edged higher from 1.1% to 1.2% and missed the forecast 1.5%.
The inflation data worsened concerns that Eurozone inflation remained subdued. Some analysts even suggested that current market bets of a European Central Bank (ECB) interest rate hike as soon as Q2 2019 was perhaps too hawkish.
As a result, Euro investors highly anticipated other Eurozone inflation figures due towards the end of the week.
Euro (EUR) Exchange Rates Pressured by Eurozone Data and ‘Trade War’ Jitters
On top of the latest Eurozone inflation concerns, the Euro has been pressured by underwhelming Eurozone confidence data.
The Eurozone’s final March confidence survey stats were published on Tuesday too but unfortunately almost every notable print disappointed.
Business confidence fell from 1.48 to 1.34, rather than the expected 1.39. Industrial sentiment, services sentiment and economic sentiment figures also all came in lower than forecast.
Eurozone consumer inflation expectations were lower too, sliding from 18 to 16.1 and keeping markets anxious about whether Eurozone inflation would improve any time soon.
The slip in confidence was partially due to concerns that protectionist trade rhetoric from the US could spark a global ‘trade war’.
Trade war concerns worsened again on Tuesday night too. The US President reportedly spoke to French and German leaders about collaborative trade action against China. This worsened concerns that the Eurozone could be dragged into a trade war too.
Pound (GBP) Exchange Rates Sold from Best Levels as Q1 Draws to an End
The Pound briefly saw a selloff on Tuesday, as the currency was sold from its best levels on quarter-end fixings.
Investors were hesitant to let the Pound end the first quarter of 2018 in a rally, and so took profit from the currency’s recent highs.
Its losses were limited however, as Brexit developments and Bank of England (BoE) rate hike bets have kept support under the currency’s trade.
Euro to Pound (EUR/GBP) Forecast: German Inflation and UK Growth in Focus
Thursday’s Eurozone and UK data could cause some notable movement in the Euro to Pound (EUR/GBP) exchange rate towards the end of the week.
Major German data, including March unemployment and March’s Consumer Price Index (CPI) projections, will be published tomorrow.
German inflation is forecast to have held at 0.5% month-on-month, but have improved from 1.4% to 1.7% year-on-year.
If German inflation falls short as Spanish inflation did, investors will remain anxious that Eurozone inflation is still more subdued than hoped and this will keep a lid on any hawkishness from the European Central Bank (ECB) regarding interest rates.
Strong inflation data, on the other hand, could boost hawkish speculation and support the Euro.
French and Italian inflation projections will be published on Friday which could also cause some late week Euro movement.
If UK Gross Domestic Product (GDP) results from Q4 2017 surprise investors on Thursday, the Pound could see some late-week movement too.