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Pound Euro (GBP EUR) Exchange Rates Bearish before German Inflation Figures

  • Pound Euro Hits 1.1324 – Euro Pound Hits 0.8827
  • German Retail Sales Beat Expectations – Euro Slightly Bolstered
  • UK Net Lending Rises More than Anticipated – Sterling Inches Ahead

UPDATE 30/10/2017 – 13:40

The Pound Euro (GBP EUR) exchange rate has since gained on news that Germany’s inflation printed at 1.6%, below the forecast of 1.7% and the previous 1.8%. 

The Pound Euro exchange rate traded within a narrow band this morning as markets prepared for Germany’s inflation release.

UK Mortgage Approvals, Net Consumer Credit Slide – GBP Exchange Rates Remain Upbeat

Mortgage approvals in the UK slid to a three-month low in September, although the housing market performed better than investors expected according to today’s Bank of England (BoE) statistics.

66.2k mortgages were approved in September, slightly below August’s figure of 67.23k but above the forecast of 65k.

In other news, net consumer credit in the UK rose by £1.606bn in September, above the consensus of a £1.5bn increase but below the previous period’s upwardly revised £1.76bn.

These figures should not give the BoE any cause for alarm ahead of Thursday’s BoE rate decision.

Paul Hollingswoth, an Economist at Capital Economics, went further, asserting that they demonstrate that the UK’s economy should be able to ‘hold onto a decent amount of momentum in the near term’.

He stated:

‘The £1.6bn rise in consumer credit was down only slightly from August’s £1.8bn rise, and higher than the consensus expectation, suggesting that households are still confident enough to borrow in order to smooth their consumption while their real incomes are being temporarily squeezed.

There doesn’t appear to be anything in these figures that would prevent the MPC from raising interest rates on ‘Super Thursday’’.

German Retail Sales Beat Expectations, EUR Exchange Rates Bolstered

Retail sales in Germany rose by 4.1% year-on-year in September, above the previous period’s 3.0% rise and smashing the forecast of 3.2%.

Month-on-month retail sales also jumped by 0.5%, beating the previous periods -0.2% contraction but remaining below the forecast of a 0.7% gain.

Germany’s economy continues to benefit from record-high employment, as well as soaring job security, real wages and low borrowing costs, ultimately leaving the outlook for the Eurozone’s largest economy relatively bright.

Markets remain bearish, however, with the Germany’s inflation figures due imminently.

GBP EUR Exchange Rate Forecast: German Inflation Expected to Disappoint

The forecast for GBP EUR remains relatively positive today, with the soon to be released year-on-year flash estimate for German inflation forecast to print at 1.7%, down from the previous period’s 1.8%.

Limp inflation remains a problem for the Eurozone, as it continually diminishes the possibility that the European Central Bank (ECB) will move for a rate hike.

If German inflation does indeed drop compared to the previous period then market demand for the single currency could plummet, with the escalating situation in Catalonia already dragging it down.

Beyond this, markets will also be waiting with baited breath for Thursday’s BoE rate meeting – which is widely anticipated to result in a 0.25 basis point rise in UK interest rates. If UK data in the build-up to Thursday remains relatively positive then the Pound will likely retain its lead, though any dovish soundbites could push things back in the Euro’s favour.