GBP/EUR: Pound At 5 Week Low vs Euro As UK Economy Stalls

Weaker US inflation and a tick higher in Eurozone GDP helped push the euro US dollar exchange rate northwards on Thursday. The pair pushed through US$1.1150 touching a high of US$1.1175.

The eurozone economy grew steadily in the third quarter, defying expectations, whilst inflation slowed. Eurozone GDP grew 0.2% July to September, ahead of market expectations of a 0.1% increase. On an annual basis, GDP increased by 1.1% year on year, beating the 1% growth forecast. Whilst these figures are better than what city analysts had pencilled in, looking at the bigger picture, they are still weak. That said, the figures show that the eurozone economy has stabilised, countering fears of a further slowdown. The euro advanced following the data, casting aside weak inflation numbers.

Inflation in the eurozone grew by just 0.7% on an annual basis in October, down from 0.9% the previous month. This will be a worry for Christine Lagarde as she steps into her new role as European Central Bank President tomorrow. With inflation slipping further way from the central bank’s 2% target, the case is growing for further ECB monetary stimulus.

There is no high impacting eurozone data to be released for the rest of the week.

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Dollar Declines As Inflation Stagnates

The dollar is trading lower across the board on Thursday, following a rate cut by the Federal Reserve in the previous session and following weaker than forecast inflation figures.

The Federal Reserve cut interest rates by 25 basis points, on Wednesday. The central bank also said that they would want to see a clear and persistent uplift in inflation before they would consider raising interest rates.

Today inflation, as measured by personal consumption expenditure, the Fed’s preferred measure of inflation, stagnated month on month in September. The Fed has indicated that it doesn’t intend to cut rates further. However, weak inflation will mean that any rate rise is a long way off.

Investors will now look ahead to the US non farm payroll, the most closely watched US macroeconomic release of the month. Analysts are predicting that 85,000 jobs were added in October, after 136,000 jobs were added in September. A weak reading could send the dollar lower.

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.

For example, it could be written:

1 EUR = 1.12829 USD

Here, €1 is equivalent to approximately $1.13. This specifically measures the euro’s worth against the dollar. If the U.S. dollar amount increases in this pairing, it’s positive for the euro.

Or, if you were looking at it the other way around:

1 USD = 0.88789 EUR

In this example, $1 is equivalent to approximately €0.89. This measures the U.S. dollar’s worth versus the euro. If the euro number gets larger, it’s good news for the dollar.

 


 

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