On Tuesday conflicting economic reports saw the Euro to British Pound (EUR/GBP) exchange rate slump.
Sterling has been struggling against the Euro since last week’s manufacturing, construction and industrial output figures all disappointed expectations; however, today it was the Eurozone’s turn to issue a less-than-impressive result.
While the Pound was buoyed against its peers by the UK’s unexpectedly significant increase in consumer price inflation, the Euro slid against all of its currency counterparts as a measure of economic sentiment for Germany declined for a seventh month.
The ZEW measures of Germany’s Current Situation and Economic Sentiment produced respective readings of 67.7 and 29.8 in June. Economists had expected the confidence gauges to decline to 67.4 and 28.2 in July.
However, both drops were considerably worse than anticipated, with Germany’s measure of the Current Situation sliding to 61.8 and Economic Sentiment dropping to 27.1.
The Eurozone’s index of economic confidence also softened, sliding by over 10 points from 58.4 to 48.1.
The data intimated that the uncertain situation in the Middle East has been taking a toll on European confidence.
In the view of economist Michael Schroeder; ‘If such conflicts, if such political risks would be lower or would vanish over time, we would again see an increase in the expectations. It’s currently not driven by main economic risks’.
That being said, Germany’s economic performance has been far from assured of late, with the nation struggling with persistently low inflation, patchy employment figures and declining industrial production levels.
For the first time in several days, Sterling strengthened against both the Euro and US Dollar as the news that the UK’s annual inflation rate climbed closer to the Bank of England’s target level of 2.0% in June.
As sub-par inflation has been one of the arguments used to support the case in favour of leaving interest rates at record lows, this data saw the odds of a BoE rate hike climb and bolstered the Pound in the process.
Over the course of the European session the Euro to British Pound (EUR/GBP) exchange rate weakened with the Pound climbing back beyond psychological support of 1.26 for the first time in several days.
The Pound was 0.5% stronger against the Euro.
The Euro also weakened modestly against the US Dollar before Federal Reserve Chairwoman Janet Yellen testified to the Senate Committee.
The Eurozone’s trade balance data could cause movement in the Euro to Pound pairing tomorrow, but investors will be taking a greater interest in the UK’s employment figures.
Euro (EUR) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,,British Pound, 0.7932,
Euro,,New Zealand Dollar,1.5452,