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Eurozone Inflation and Brexit Concerns Boost Euro to Pound Exchange Rate Demand

Euro to Pound Exchange Rate Supported by Wednesday News

While investors were largely unsurprised by Wednesday’s Eurozone data, some prints supported the Euro to Pound (EUR/GBP) exchange rate, while Sterling was pressured by another round of fresh Brexit concerns.

Wednesday saw a slew of influential Eurozone ecostats published, which were heavily mixed but overall left investors optimistic about the Eurozone’s economic outlook.

German retail sales unexpectedly tumbled in December to -1.9% in both month-on-month and year-on-year prints. However, Germany’s January unemployment rate figure unexpectedly improved from 5.5% to 5.4%.

The day’s inflation projections were mixed too, with French inflation beating expectations but Spanish price pressures falling short.

Overall, the Eurozone’s Consumer Price Index (CPI) was projected to have slowed from 1.4% to 1.3% year-on-year in January, as markets expected.

However, some investors were happy with news that the Eurozone’s core inflation rate was projected to rise from 0.9% to 1% year-on-year.

Pound (GBP) Exchange Rates Limited by Brexit Uncertainties

The Pound was supported on Tuesday by the latest comments from Bank of England (BoE) Governor Mark Carney, who indicated that the bank will be refocusing on helping to slow down UK inflation in the coming months.

During a speech to the UK House of Lords, Carney stated;

‘The important thing with policy now … is that as … slack in the economy has been taken out, we move into a more conventional area for monetary policy, where the focus is increasingly on returning inflation sustainably to target over an appropriate horizon,’

He also expressed confidence that Britain’s job market was improving and that wages were firming.

His comments boosted market hopes that the bank could be gearing up to take a more hawkish stance on UK monetary policy than previously expected.

However, on Wednesday morning it emerged that European Commission officials had denied a proposal from the City of London for free trade on financial services post-Brexit.

The news disappointed economists who have been hoping for London to maintain strong connections with the EU as a major financial sector after the Brexit process is over.

Outlook on Euro (EUR) Exchange Rates Remains Strong

Other recent Eurozone data has continued a trend of indicating that the Eurozone’s economic outlook is strong, and investors are becoming increasingly confident in the stability of the bloc.

Tuesday’s Eurozone Gross Domestic Product (GDP) projections for Q4 2017 met expectations, with the yearly growth rate projected to come in at a respectable 2.7% for the quarter.

On top of this, it was reported on Wednesday that an index measuring the risk of a Eurozone breakup had fallen to its lowest level on record.

According to the latest survey data from Sentix, only 6.9% of respondents now believe the Eurozone will fail over the next year.

The fall in the index has been largely due to market confidence in the Eurozone’s increasingly impressive economic performance since 2017.

Euro to Pound (EUR/GBP) Exchange Rate Forecast: Manufacturing PMI Data Ahead

Most of the week’s most notable Eurozone and UK data has been published now, so movement in the Euro to Pound (EUR/GBP) exchange rate could be quieter until next week.

However, EUR/GBP could still be influenced by PMI data due for publication on Thursday.

Markit’s final January manufacturing PMI results will be published on Thursday, for many Eurozone nations as well as Britain. The most notable prints will be German, Eurozone and UK manufacturing figures.

Investors will also pay attention to speeches from central bank officials on Thursday.

European Central Bank (ECB) Chief Economist Peter Praet will be holding a speech, as will Bank of England (BoE) policymaker Alex Brazier.

Italian inflation data will be published on Friday, but towards the end of the week investors will be increasingly anticipating next week’s major news, which includes the Bank of England’s (BoE) first policy decision of 2018.