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Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: Single Currency Lost Ground as Volkswagen Scandal Rumbles on

Euro (EUR) turning Positive in advance of Finalised Eurozone Inflation Measure

Ahead of today’s finalised Eurozone Consumer Price Index reading the GBP/EUR exchange rate is in a narrow downtrend, ceding back ground gained after it emerged that Volkswagen would be recalling 8.5 million vehicles in Europe. At present, the GBP/EUR exchange rate is trending in the region of 1.3609.


The GBP/EUR exchange rate has continued to strengthen today as a weak Eurozone Industrial Production figure and the Volkswagen scandal hold down the Euro (EUR).

Negative UK Inflation Drove GBP/EUR Exchange Rate to Eight-Month Low

The Pound (GBP) was weighed down on Tuesday by the release of an unexpectedly weak UK Consumer Price Index reading, which showed negative inflation in September. Suggesting that the recovery of the domestic economy is not as robust as might have been hoped, this fuelled speculation that the Bank of England (BoE) could leave interest rates unchanged through much, or even all of, 2016. Consequently there was a decided slump in demand for Sterling, which helped to push down the GBP/EUR currency pair to an eight-month low of 1.3350.

Although the ZEW Economic Surveys, in particular the Economic Sentiment Index, proved decidedly worse than forecast, the Euro (EUR) remained dominant thanks to an atmosphere of risk-aversion which drove pundits towards the safe-haven currency.

Lowest UK Unemployment Rate in Seven Years Shored up Pound (GBP), Euro (EUR) Dovish after Eurozone Industrial Production Declined

Wednesday proved more encouraging for the Pound with the publication of a raft of UK employment statistics. While the Jobless Claims Change figure was less strong than had been expected, with the number of unemployment claims rising by 4,600, this was overshadowed by the surprise revelation that the ILO Unemployment Rate had fallen to 5.4% in the three months to August. As Average Weekly Earnings also continued to show growth, albeit a little slower than forecast, investors began to speculate that the BoE could be prompted to begin tightening monetary policy sooner rather than later. In response, the GBP/EUR exchange rate rallied strongly to advance throughout the day.

Sentiment towards the single currency turned dovish, meanwhile, as Eurozone Industrial Production in August was revealed to have unexpectedly receded to 0.9% rather than posting a minor uptick to 1.8%.  The resultant weakness has carried over into Thursday as the Volkswagen emissions scandal continues to take its toll on Eurozone economic confidence, with the revelation that millions more cars will have to be recalled as a result of illegal ‘defeat devices’.

GBP/EUR Exchange Rate Forecast: Euro Could Strengthen should Upcoming US Data Prove Weak

Domestic data for the pairing will be limited ahead of the weekend, with no further figures to come from the UK and only the finalised September Consumer Price Index from the Eurozone. As this figure is unlikely to change from the earlier provisional reading it does not seem likely to provoke much volatility for the single currency. Further developments in the Volkswagen case could drive the Euro down further, however, while continued weakness in the economic data of the US may hold the potential for a common currency rally.

Current GBP, EUR Exchange Rates

At time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was rising in the range of 1.3532, while the Euro to Pound Sterling (EUR/GBP) pairing slumped around 0.7391.