GBP/EUR Exchange Rate Sinks as UK Inflation Sinks to Lowest Levels Since 2016
The Pound to Euro (GBP/EUR) exchange rate fell by -0.2% today, with the pairing currently fluctuating around €1.113.
Sterling suffered today after the UK’s consumer price index for May confirmed consensus and fell to a 4-year low of 0.5%.
Jonathan Athow, the deputy national statistician for economic statistics at the ONS, commented on the data:
‘The growth in consumer prices again slowed to the lowest annual rate in four years.’
‘The cost of games and toys fell back from last month’s rises, while there was a continued drop in prices at the pump in May, following the huge crude price falls seen in recent months.’
‘Outside these areas, we are seeing few significant changes to the prices in the shops.’
As a result, the Pound (GBP) has suffered as inflation is now at its lowest level since June 2016. This has left investors concerned that the Bank of England (BoE) could ramp up its stimulus programme.
Meanwhile, the BoE’s Monetary Policy Committee are expected to announce an extra £100 billion of bon purchases on Thursday.
After Britain’s economy suffered a record slump of 20% in April due to closure of non-essential businesses, the nation’s economic outlook remains grim.
Euro (EUR) Rises Despite Plummeting EU New Car Sales in May
The Euro (EUR) edged higher against Sterling today despite the release of the EU new car sales figure for May. However, with car sales falling by a whopping -52%, to just 581,161 cars against last year’s 1.2 million, this has left some EUR traders feeling jittery about the economy.
Analysts at Bloomberg commented:
‘The industry is hoping that consumers will drive an improvement this summer by turning to cars for their holidays instead of flying to far-away destinations.’
‘Another positive signal is coming from China, where car sales rose for the first time in almost a year last month. The region has become a focus for European automakers, who are hoping better business there will make up for muted registrations at home.’
In Eurozone economic news, today will see the release of May’s Consumer Price Index for May. However, if this confirms consensus at -0.1%, then we could see the single currency suffer.
Also coming up today is a speech by Luis De Guindos, the Vice-President of the European Central Bank. Any dovish comments about the Eurozone’s economic health going forward would prove EUR-negative.
GBP/EUR Forecast: Could a Gloomy BoE Drag Down Sterling?
Pound (GBP) investors will be looking ahead to tomorrow’s interest rate decision from the Bank of England (BoE). However, forecasters expect the national bank to hold its interest rates at 0.1%.
However, any announcement of further stimulus measures or a gloomy outlook for the British economy would prove detrimental to the GBP/EUR exchange rate.
Meanwhile, Euro (EUR) investors will be paying close attention to Thursday’s European Council Meeting. Any dovish comments about the Eurozone’s economic situation would drag on the single currency.
The GBP/EUR exchange rate will continue to be driven by the UK’s economic situation this week. As a result, we could see Sterling rise if Downing Street drops any hints about easing its lockdown measures.
