The Pound Sterling to Euro (GBP/EUR) exchange rate rallied by around 0.53% on Tuesday afternoon.
After British inflation moved away from deflationary territory in May, the Pound advanced versus its major peers. However, analysts expect that inflation will remain low for a sustained period, something which is better for consumers than investors and may prompt the Bank of England (BoE) to keep interest rates lower for longer. Missed estimates in the core inflation measure weighed on Sterling gains.
The Euro, meanwhile, saw significant fluctuations already on Tuesday morning. The single currency gained in response to news that European Central Bank (ECB) President Mario Draghi got court backing for the Outright Monetary Transactions (OMT) bond-buying scheme outlined in 2012. The Euro gains were short-lived, however, after the German ZEW Economic Sentiment Survey failed to meet with the median market forecast. Additionally, the ongoing geopolitical upheaval in Greece nation is weighing on investor confidence.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.3866.
Pound Sterling (GBP) Exchange Rate Forecast to Trend within Tight Range against the Single Currency after Core UK Inflation Misses Estimates
Bank of England (BoE) Governor Mark Carney’s reassurances that the dip into deflation was only temporary were confirmed today after May’s Consumer price Index saw an annual increase from -0.1% to 0.1%. However, the Core CPI failed to meet with the market consensus of a rise from 0.8% to 1.0%, with the actual result only reaching 0.9%.
Despite the generally positive data results, the Pound saw minimal impact initially. This was due to analysts fearing that the UK will see a long period of low inflation, something which will put off investors seeking higher returns. Additionally, a weak inflation outlook is likely to weigh on policymaker decisions. ‘Deflation lasted for just one month but the big picture is that inflation is likely to remain extremely low throughout the rest of 2015,’ said Samuel Tombs, an economist at Capital Economics Ltd. in London. ‘The UK’s weak inflation outlook is likely to ensure that the MPC keeps interest rates at their record-low level for another year or so.’ However, the Pound strengthened on Tuesday afternoon as traders responded to inflation having moved away from deflationary territory.
The Pound Sterling to Euro (GBP/EUR) exchange rate has fallen to a low of 1.3789 today.
Euro (EUR) Exchange Rate Forecast to Hold Steady against the British Pound after German Economic Sentiment Declined
As mentioned earlier, the shared currency has seen significant fluctuations on Tuesday morning as traders balance good news from the ECB against disappointing domestic data results. The ECB’s 2012 bond-buying scheme, known as the Outright Monetary Transactions (OMT) program, was awarded the backing of the European Union’s highest court, expanding President Mario Draghi’s crisis-fighting tools. This could be particularly useful as a way of reducing the fallout from a Greek exit from the Eurozone. ‘Having the OMT ready without impediments is a good thing, in terms of the escalating Greek exit risks that we’re seeing’ Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam said. ‘It’s not 2012 but we are seeing some knock-on effects.’
However, the shared currency gains following this announcement were short-lived as the German ZEW Economic Sentiment Survey failed to meet with expectations. June’s economic sentiment was forecast to drop from 41.9 to 37.3, but the actual result dropped to 31.5. Eurozone economic sentiment also declined in June.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast to Trend within Limited Range ahead of British Labour Market Data
With sentiment towards both assets dampened, and with an absence of further data publications to initiate changes, the Pound Sterling to Euro (GBP/EUR) exchange rate is likely to hold steady for the remainder of Tuesday’s European session. With that being said, however, any negative developments in Greece could cause further Euro depreciation.
Wednesday is likely to see GBP/EUR movement with several influential British labour market data publications due for release. Should wages increase, the forecast long period of low inflation will be a big positive for consumers.
The Pound Sterling to Euro (GBP/EUR0 exchange rate advanced to a high of 1.3849 today.