- GBP EUR Rises on CPI Data – UK inflation impresses.
- Italian Banking Crisis weighs on Euro – Unicredit announces massive restructuring plan amid concerns over Italy’s banking sector.
- UK Unemployment Data Ahead – Surprise drop in unemployment may help the Pound rally further.
The GBP EUR exchange rate rose this morning after the UK’s latest Consumer Price Index saw British inflation rise faster than expected in November.
Pound Euro (GBP EUR) Strengthened by Rise in Inflation
The Pound Euro (GBP EUR) exchange rate rallied this morning after UK inflation hit a two-year high. The latest CPI data showed that inflation rose from 0.9% to 1.2% in November, outpacing expectations that it would only reach 1.1% and performing at its highest levels since October 2014.
Investors were upbeat about the impressive data as they forecast that the accelerating inflation rate may cause the Bank of England (BoE) to re-evaluate its current monetary easing programme and could even lead to a rise in interest rates.
However Tom Stevenson, investment director for personal investing at Fidelity International believes that; ‘There is little evidence so far that rising inflation will translate into much higher interest rates’ as he warns that inflation may overshoot the BoE’s target of 2% in 2017.
There are also warnings that rising prices are likely to impact public spending in the New Year as spending is hit by price hikes in January as retailers renegotiate with suppliers for the first time since the fall of the Pound after the UK’s vote for ‘Brexit’ back in June.
Euro Pressured over Italian Banking Crisis
The Euro continues to be pressured by concerns for Italy’s banking sector as the nation’s oldest bank, Monte dei Paschi, faces the possibility of a government bailout as it struggles to attract investors to raise the €5bn in cash.
Amid these fears Unicredit, Italy’s largest lender, announced wide-reaching restructuring plans in an effort to raise €13bn. As part of its plan to transform its operating model it plans to issue new shares to investors, clean up bad debts and make additional job cuts, slashing an additional 6,500 jobs to bring total job losses to 14,000 by 2019.
While markets generally welcomed the news it has not completely alleviated concerns over Italy’s banks, with Unicredit still having a long way to go before it is out of the woods. As Reuters columnist Neil Unmack reported;
‘All Italian banks are hampered by low rates and high bad debts, but UniCredit’s lowball 10.8 percent core Tier 1 capital ratio and Banca Monte dei Paschi’s ongoing fragility are the two biggest concerns. Add in the political uncertainty following the domestic referendum and getting investors to support a 13-billion-euro rights issue – nearly the same size as UniCredit’s market value – is a big ask.’
GBP EUR Exchange Rate Forecast: UK Employment Data Due on Wednesday
The GBP EUR exchange rate may rally tomorrow if the UK’s Unemployment Rate improves. While most analysts currently forecast that unemployment will hold at an eleven-year low of 4.8% in October, an unexpected drop could cause the Pound to surge.
Meanwhile the Euro is likely to slide tomorrow as Eurozone Industrial Production is expected to have slipped from 1.2% to 0.8% in October, although a surprise turn around could help bolster the single currency’s defences against Sterling’s advances.
Current Interbank Exchange Rates
At the time of writing the GBP/EUR exchange rate was trending around 1.19 and the EUR/GBP exchange rate was trending around 0.83.