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Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: Eurozone Inflation Falls to 2009 Low

Euro Exchange Rates

The Pound Sterling to Euro (GBP/EUR) exchange rate remained trading at a seven year high on concerns over the Greece situation and as data showed that inflation in the Eurozone was confirmed to be at its lowest level since the height of the global financial crisis of 2009.

The Pound Sterling to Euro (GBP/EUR) exchange rate hit a session high of 1.3664

A sharp decline in global oil prices was the main cause of the decline in inflation. With energy prices sliding across the region, the cost of transporting goods fell which in turn led to cheaper prices in the shops.

The data showed that the Eurozone’s inflation rate has been confirmed at -0.6% in January a figure which matches the record low touched at the height of the Great Recession. The data adds to the case for the European Central Bank announcing a €1.1 trillion quantitative easing programme which is due to begin in March.

Prices tumbled by -1.6% in the first month of 2015, in line with expectations and compares to the -0.1% drop seen in December.

The core rate of inflation, which removes volatile measurements such as energy, remained positive at a reading of 0.6%. The figures were widely expected by economists.

Other data out of the Eurozone showed that the German economy expanded by 0.7% on a quarterly basis at the end of last year and on an annual basis expanded by 1.6%.

Also in focus for the Euro is the Greek situation. The Syriza led government delivered a list of reforms it intends to make in order to receive an extension to its bailout programme just in time. The proposals still need to be accepted by the Germans who will vote on the matter on Friday. Until then jitters will remain that the proposals could be rejected. If that happens, fears will rise again that Greece could be heading for the exit from the Eurozone.

BoE Policy Maker Warns of Rate Rises

The Pound Sterling meanwhile was supported by comments made by Bank of England policymaker Kristin Forbes who said that the British inflation pressures could rally quickly and force the need for an interest rate hike.

‘If economic growth continues at or above trend, the financial system continues to heal, and the cost of borrowing in the UK remains near zero, these risks to the financial system could build,” Forbes said.

BoE Governor Mark Carney was also delivering a testimony to the House of Commons Treasury Committee. Any hint that interest rates could rise sooner than forecast and the Sterling will advance. A dovish testimonial however and Sterling could give up its earlier gains.