The pound snapped a three-session losing streak versus the euro on Tuesday. The pound euro exchange rate trended higher across the session to close 0.2% higher at €1.1700. The pair is edging higher in early trade on Wednesday.
After losing over 1.1% since Friday, the pound was on the rebound in the previous session. Sterling has lost ground over recent session amid growing expectations that the Bank of England will ease monetary policy sooner rather than later. Fears of a rate cut were then further fueled by disappointing GDP data, which showed that the UK economy contracted by -0.3% in November, significantly worse than the stagnation that analysts forecast.
The health of the UK economy will remain in focus today as investors look towards the release of UK inflation data. Analysts are expecting inflation to remain steady in December t 1.5%. Core inflation which excludes volatile items such as food and fuel. These figures remain below the Bank of England’s 2% target. Last week in his speech, BoE Governor Mark Carney said that inflation in the UK was sluggish, these latest figures are unlikely to prove otherwise.
Weak GDP growth coupled with lacklustre inflation is a recipe for an interest rate cut. A weak reading today could send the pounds once again.
US – EU Trade Tensions To Ease Or Elevate?
The euro edged lower versus its peers on Tuesday. In the absence of macro data from the region trade was back under the spotlight as EU Trade Commissioner Phil Hogan visited his US counterpart in Washington amid ongoing tensions between the EU and US over trade policy.
The EU’s trade surplus with the US has caught Trump’s eye. Trump imposed steel and aluminium sanctions on EU in 2018. Trump has also threatened sanctions on EU car manufacturers but has not yet followed through on his threat. If he did, the impact on the German economy could be substantial. Headline from those talks could direct movement in the euro.
German GDP data will also be under the spotlight. Analyst are expecting the German economy to have weakened. Eurozone industrial production, on the other hand, could offer support to the common currency as analysts forecast that production increase 0.3% month on month in November, up from -0.5% decline in October.
|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.