Pound (GBP) Sinks as Eastern European Countries Reject Cameron’s EU Migrant Benefit Reforms
The Czech Republic, Hungary, Poland and Slovakia have all rejected part of David Cameron’s proposed EU reforms which would limit benefits granted to migrant workers in the UK. The countries, who make up the Visegrad-4, are concerned about agreeing to proposals that negatively affect their citizens in the UK; citizens who can still vote in domestic elections. European Council President Donald Tusk has said that ‘there is an extra mile we will have to walk to reach an agreement.’
The Pound (GBP) is currently trending negatively against every major currency apart from the Australian Dollar (AUD) and the South African Rand (ZAR).
Mixed UK CPI Figures, Eurozone Sentiment Crash Not Enough to Strengthen Pound
Year-on-Year (YoY), UK Consumer Prices have risen at their fastest pace in a year, but on a monthly basis they fell further-than-expected, slipping from the previous rate of 0.1% to -0.8%, while the Core index slipped more-than-forecast. However, Eurozone data performed worse, showing a huge tumble in positive sentiment, although the Euro has managed to mitigate losses and remains within opening levels of Pound Sterling.
The Pound Sterling to Euro (GBP/EUR) exchange rate is making strong gains ahead of key data releases today. UK CPI will be followed by the ZEW Economic Survey for Germany, which is keeping the Euro (EUR) soft as Pound Sterling (GBP) advances on a technical correction after yesterday’s losses.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Rises on Pending CPI Release and EU Reform Negotiation Success
Despite mixed news today, Pound Sterling is strong against the Euro ahead of the UK’s Consumer Price Index figures for January. It’s likely that very few are expecting the result, even a positive one, to have much impact on when the Bank of England (BoE) will raise interest rates, but the numbers themselves are still a good indicator of UK growth. Current predictions for the BoE hiking rates range from the end of 2017 to the beginning of 2020, so an above-forecast CPI result might not change the long-term forecast.
The Pound has been strengthened by suggestions that Prime Minister David Cameron’s meeting yesterday with French President Francois Hollande had been a success. According to UK officials, the two leaders reached a consensus. In further positive news, according to thinktank Resolution Foundation, UK living standards have finally surpassed their pre-financial crash levels. Average income has now reached its highest ever level, hitting £24,300.
As the thinktank explains, ‘The financial crash led to one of the longest and deepest squeezes on household incomes in living memory. But the welcome recent backdrop of strong employment growth and ultra-low inflation has meant that typical household incomes have finally surpassed their previous peak.’
The Pound Sterling to Euro exchange rate is currently trending in the region of 1.2987.
Euro to Pound Sterling (EUR/GBP) Exchange Rate Slumps Ahead of Predicted ZEW Washout
The key ZEW Economic Sentiment Index is due out later during the European session and investors are cautious ahead of the results. The current predictions show a crash in economic sentiment for the Eurozone, with the index predicted to fall from 22.7 to 13.7. The results for Germany are expected to perform similarly, as the latest fears over China and the global stock rout show up in the survey results for the first time this year.
The Euro is also weakened by the threat of conflict between the European Central Bank (ECB) and Germany’s top law court. German officials have filed a complaint against an unused stimulus mechanism, the Outright Monetary Transactions (OMT), suggested by ECB President Mario Draghi in 2012. If used, the OMT would allow the ECB to buy unlimited government bonds from struggling Eurozone countries to prevent them from collapsing and being forced to leave the Eurozone.
The controversy has been caused by the caveats the ECB placed upon the programme, such as specifying that bonds would only be bought from governments who had secured a bailout agreement through the European Stability Mechanism (ESM). Part of the ESM required governments to make economic reforms and opponents of the OMT argue that this means the ECB is violating its mandate, indirectly forcing economic reforms upon Eurozone countries. If the case continues to court it could cause serious division between major political players in the Eurozone.
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trading between 0.7693 and 0.7746.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: CPI and German ZEW Economic Survey on Tap
With UK CPI expected to print slightly higher, with the core index falling slightly and the ZEW survey forecast to show an extreme fall, GBP/EUR could remain strong for the rest of the session. However, if the ZEW survey shows a less-severe-than-expected result, there is the potential for the single currency to strengthen.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trading between 1.2900 and 12994.