GBP/EUR: Brexit Lowers Pound vs. Euro Despite German Inflation Data

Brexit uncertainty dragged the pound lower versus the euro for the third straight session. The pound euro exchange rate fell to a low of €1.1210, its lowest level in over a week.

What do these figures mean?
When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.h If the euro amount increases in this pairing, it’s positive for the pound. Or, if you were looking at it the other way around:1 EUR = 0.87271 GBPIn this example, €1 is equivalent to approximately £0.87. This measures the euro’s worth versus the British pound. If the sterling number gets larger, it’s good news for the euro.

EU Chief Negotiator Michel Barnier added to Brexit concerns on Thursday by clarifying once again that the Brexit deal on the table is the only Brexit deal available. His comments come after a particularly disturbing Brexit headlines and as doubts remain over whether UK Theresa May will be able to push her Brexit deal through Parliament.

Earlier in the week, the government’s economists and the Bank of England painted a very bleak outlook for the UK economy, no matter what form Brexit will take.; be that Theresa May’s Brexit or a disorderly no deal Brexit.

Why is a “soft” Brexit better for sterling than a “hard” Brexit?
A soft Brexit implies anything less than UK’s complete withdrawal from the EU. For example, it could mean the UK retains some form of membership to the European Union single market in exchange for some free movement of people, i.e. immigration. This is considered more positive than a “hard” Brexit, which is a full severance from the EU. The reason “soft” is considered more pound-friendly is because the economic impact would be lower. If there is less negative impact on the economy, foreign investors will continue to invest in the UK. As investment requires local currency, this increased demand for the pound then boosts its value.

Today there is little in the way of high impacting UK data to be released. This means that Brexit headlines will continue to drive the pound. Investors could look towards UK Nationwide House Price Index for further clues on the health of the UK economy. Analyst are expecting housing prices to have ticked higher in November after house prices grew at the slowest rate in 5 years in October. A slight move higher in house prices would show that consumers are feeling slightly more confident, a positive sign of the economy.

Eurozone Inflation In Focus

The euro was broadly in demand on Thursday, after a mixed bag of data. Consumer confidence across the eurozone was strong and beat analysts expectations. However, German inflation was weaker than what analysts had been forecasting. German inflation increased by 0.1% month on month, below the 0.2% expected. On an annual basis inflation increased at 2.3%, below the 2.4% predicted by analysts.

This data will fuel concerns over the eurozone economy. Eurozone inflation data is due today, a weak reading could pull the euro lower. So far, the European Central Bank have acknowledged slowing economic growth momentum. However, the ECB also acknowledged that inflation remained elevated. If inflation starts to fall the ECB will be less inclined to tighten monetary policy going forwards.

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