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GBP EUR Exchange Rates Climb on Disappointing Eurozone Inflation Print

  • GBP EUR Climbs to 1.1368 – EUR GBP Slips to 0.8793
  • Eurozone Inflation Disappoints – 2018 Rate Hike Prospects Diminish Even Further
  • Eurozone GDP Proves Better than Expected – Mixed Data Leaves the Euro Floundering

The Pound (GBP) retained its lead over the Euro (EUR) today on a disappointing Eurozone inflation print and a robust Eurozone GDP print – mixed releases that failed to propel the single currency above the currently bullish Sterling.

Eurozone Inflation Disappoints – EUR Exchange Rates Encumbered

Consumer prices in the Eurozone are expected to climb by 1.4% year-on-year in October, down from the previous period’s 1.5% and below the market forecast of 1.5%.

This marks the smallest rate of inflation in three months – a disappointing reading caused predominantly by a slowdown in energy and services costs, according to preliminary estimates.

European Central Bank (ECB) President Mario Draghi has previously warned that headline inflation levels will most likely decline in the coming months, with the impact of a rebound in oil prices falling outside of annual calculations.

Despite this, the core inflation flash estimate for October also proved poor by increasing 0.90% in October over the same month in the previous year, below the forecast of 1.1% and the previous period’s 1.1%.

Separate data today pointed to strong recovery in the Eurozone, with their gross domestic product print beating forecasts. With inflation falling rather than moving closer to target levels, however, rate hike prospects for the bank in the first half of 2018 appear to be dwindling.

This limited the upward potential of the Euro today, negating progress made on the positive GDP print.

Eurozone GDP Beats Forecasts – GBP Exchange Rates Retain Lead

Economic growth in the Eurozone was revealed to have beaten forecasts in Q3 today, with unemployment also falling below 9% for the first time in almost 9 years.

The Euro Area’s economy expanded by 2.5% year-on-year in Q3 2017, Eurostat revealed in their preliminary flash estimate, beating the previous period’s 2.3% growth and the market consensus of 2.1%.

Unemployment in the Euro Area also proved positive by falling to 8.9%.

These releases only added to the raft of data over the course of the year that has been indicative of robust economic recovery in the bloc, and with unemployment inching even lower and wage growth outstripping inflation, it seems increasingly likely that upbeat consumer spending could bolster the EU economy in the coming months.

Despite this, the Euro remains unable to gain supremacy over the Pound, with the poor inflation print weighing the single currency down and rate hike fever for ‘Super Thursday’ propelling the Pound.

GBP EUR Outlook Positive on BoE Rate Hike Prospects

The near-term outlook for GBP EUR remains in the Pound’s favour, with markets almost entirely pricing in a 0.25 basis point rise in interest rates from the BoE on Thursday.

This would mark the first interest rate rise from the bank in over a decade.

With the Eurozone’s two most significant data releases out of the way (and having proved minimally effective in knocking the Pound) investor demand for Sterling may well increase in the mean-time, though markets will still be keeping an eye on the performance of upcoming EU and UK Markit PMI releases.

Beyond a rate hike, however, markets will be paying close attention to the sentiment contained in the accompanying statement from the bank, with any indication that the rate hike might be a ‘one off’ liable to curb some interest in the Pound in the months ahead.