The Pound Sterling to Euro (GBP/EUR) exchange rate softened on Thursday while the Pound Sterling to US Dollar (GBP/USD) exchange rate recorded gains.
The Pound Sterling to Euro (GBP/EUR) exchange rate began Wednesday trending lower, while the Pound Sterling to US Dollar (GBP/USD) exchange rate recorded gains.
Earlier… The Pound Sterling to Euro (GBP/EUR) and Pound Sterling to US Dollar (GBP/USD) exchange rates both tanked in Tuesday’s trading after UK inflation fell from 0.3% to 0.0% in February, lower than the 0.1% forecast.
Chief economist at the British Chambers of Commerce David Kern has forecast inflation to slip below 0.0% in coming months, stating: ‘These historically low figures reinforce our belief that inflation will fall into slightly negative territory in the coming months, before returning to a positive trend before the end of the year.’
‘However, we remain convinced that there is very little risk of a long period of deflation.’
An extended period of disinflation could prevent the Bank of England (BoE) from increasing interest rates, perhaps implementing a cut to the benchmark level instead.
BoE chief economist Andrew Haldane recently suggested that a longer slip into deflation territory was likely to see borrowing costs downwardly revised; however, he suggested that current monetary policy was accommodative.
Haldane stated: ‘I think the chances of a rate rise or cut are broadly evenly balanced. In other words, my view would be that policy may need to move off either foot in the immediate period ahead, depending on which way risks break.’
US Inflation Climbs, US Dollar (USD) Exchange Rate Forecast to Gain
Conversely, US inflation figures printed favourably, placing more pressure on the GBP/USD exchange rate. US Core Inflation rose from 1.6% to 1.7%, increasing by 0.2% on the month in February. The upbeat ecostat allowed the non-core measure to rise from -0.1% to 0.0%.
Dollar index shoots higher after that CPI report pic.twitter.com/9MFDvzYmeE
— Joseph Weisenthal (@TheStalwart) March 24, 2015
The rebound shows that underlying US inflation is beginning to strengthen, another reason investors may begin to price in a Federal Reserve interest rate hike in the near future.
The Fed has previously stated that weaker inflation was merely temporary and Tuesday’s CPI could boost optimism.
However, offsetting the upbeat inflation ecostat is the fall in CPI Real Earnings, which softened by -0.1% in the month of February after January’s +1.2% growth.
Later in the session the US House Price Index and Markit’s Manufacturing Purchasing Managers Index (PMI) will be released which could cause additional US Dollar to Euro (USD/EUR) and US Dollar to Pound Sterling (USD/GBP) exchange rate movement.
UPDATE: The US Dollar rallied against the Pound Sterling (USD/GBP) and the Euro (GBP/EUR) after Markit’s US Manufacturing Index reached 55.3 in March from the previous 55.1, instead of softening to 54.6 as forecast. Additionally, US New Home Sales recorded a 7.8% rise in February in stark contrast to the -3.4% contraction predicted. The ecostat recorded a seven-year high.
Meanwhile, the Euro enjoyed support from favourable data as well as improving relations between Germany and Greece. Greece has been attempting to renegotiate its austerity deal after left-wing party Syriza was recently voted in.
However, conflict between Greece and Germany had heightened in recent weeks adding additional stress to the situation.
After meeting with Greek Prime Minister Alexis Tsipras today, German foreign minister Frank-Walter Steinmeier said: ‘I’m pleased that the atmosphere in German/Greek talks in recent days has changed and improved significantly.’
Hopefully, with less banter distraction, talks will be able to move forward and a long-term deal could be made.
Additionally, both Eurozone and German Markit Manufacturing, Services and Composite Purchasing Manager’s Indexes rose on Tuesday offering the Euro to US Dollar (EUR/USD) and Euro to Pound Sterling (EUR/GBP) exchange rates significant support.
Pound Sterling to Euro (GBP/EUR) and Pound Sterling to US Dollar (GBP/USD) Exchange Rate Forecast
The Pound Sterling to US Dollar (GBP/USD) exchange rate is forecast for another day of fluctuations on Wednesday with the release of UK BBA Loans for House Purchase and US Durable Goods Orders stats.
Meanwhile, the Pound Sterling to Euro (GBP/EUR) exchange rate could experience movement on the release of German IFO Business Climate, Current Assessment and Expectations figures.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is trading at 1.4947. The Pound Sterling to Euro (GBP/EUR) exchange rate is trending in the region of 1.3598.
