The pound edged lower once again versus the euro on Wednesday as investors digested inflation data from both the UK and the eurozone.
The pound slipped in the previous session following the release of inflation data. Inflation in UK remained steady in November at 1.5%. This was above the decline to 1.4% that analysts had predicted. Core inflation, which strips out more volatile items such as food and fuel remained steady at 1.7%. Both readings remain well under the Bank of England’s 2% inflation target. This inflation data will do little to quell concerns that the BoE could be heading towards a rate cut next year.
Today the BoE is due to give its monetary policy announcement at 12 midday local time. Market participants are expecting the central bank to keep policy unchanged, with interest rates at 0.75%. There will be no press conference following the announcement, limiting the impact that the meeting will have.
Recent data hasn’t been encouraging. The PMI readings for both the dominant service sector and the manufacturing sector printed below expectations, in contraction territory. Unemployment data was more supportive, with unemployment slipping to 3.8%, its lowest level since 1975. However, wage growth slowed. Inflation was also steady. Should wage growth slow further inflation could slip, leaving the Bank of England little choice but to cut interest rates early next year.
All in all, analysts are not expecting any fireworks from today’s meeting. Instead investors will be looking for further clues as to who will fill Mark Carney’s shoes when he steps down.
Euro Strengthens Post IFO Data
The euro edged higher versus the pound in the previous session, supported by stronger than forecast IFO business sentiment data. German IFO index suggests that the worst could be over for Europe’s largest economy. The IFO leading indicator increased for the fourth month in a row to 96.3 in December. This suggests that the slump in the German economy could be bottoming out.
Eurozone inflation data had a muted reaction as it printed in line with analysts forecasts at 1% year on year in November, up from 0.7% the previous month.
There is little in the way of high impacting economic data for the eurozone today. Investors will look ahead to consumer confidence figures on Friday. A solid reading could boost the euro, calming fears over the health of the bloc’s economy.
| 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 GBP = 1.13990 EUR Here, £1 is equivalent to approximately €1.14. This specifically measures the pound’s worth against the euro. 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 GBP In 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. |
