Over the course of European trading the Pound fell against its common currency counterpart even as reports from the Eurozone showed an unexpectedly large drop in German economic sentiment.
The Euro’s advance on Sterling was aided by the news that the UK consumer price index declined by 0.6 per cent in January, month on month, trimming the year-on-year CPI advance to 1.9 per cent from 2.0 per cent.
Economists had expected a monthly dip of 0.5 per cent and no change to the annual level.
This marks the first time inflation has come in below the Bank of England’s 2 per cent target for over four years.
Core annual inflation came in at 1.6 per cent, the lowest reading since mid-2009, and the Pound softened against the majority of its currency counterparts after the figures were published.
In last week’s inflation report the BoE asserted that inflation would remain close to target levels for the next three years as ‘the inflation environment is more benign than we had anticipated […] commodity prices have fallen, and Sterling has appreciated by 10 per cent since its March trough. All of these developments will hold back imported inflation pressures.’
The Pound moved away from a four-year high against the US Dollar and softened against the Euro as trading continued.
UK government bonds climbed.
In the opinion of one industry expert; ‘With Pound-Dollar testing four-year highs yesterday, a soft inflation number was always going to cause a wobble in the Pound. The theme of the day continues as Sterling is sold in reaction to the inflation data.’
The Euro meanwhile was little affected by the news that investor confidence in Germany fell by more than anticipated in February, with the measure falling to 55.7 from 61.7 the previous month.
A separate index recording the current situation in Germany strengthened by more than expected, advancing to 50.0 from 41.2 rather than rising to the 44.0 expected.
Tomorrow the EUR/GBP pairing could experience a reversal of fortunes as UK employment figures are published.
Another strong month for the UK employment sector could help the Pound recover losses and advance on the Euro tomorrow.
Eurozone construction output figures will also be of interest.
Euro (EUR) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,,US Dollar,1.3712 ,
Euro,,British Pound,0.8231 ,
Euro,,New Zealand Dollar,1.6459,