The pound dipped versus the euro on Wednesday. GBP/EUR slumped to a low of €1.1658 before picking up slowly across the session, to close at €1.1690. The pound euro exchange rate is holding steady in early trade on Thursday.
The pound struggled in the previous session after data showed that inflation in the UK dropped to a three-year low. Consumer prices increased by just 1.3% year on year in December, down from 1.5% the previous month. The weak inflation reading comes after data earlier on the week showed that the UK economy contracted by -0.3% in November, after stagnating in October.
Lacklustre inflation and sluggish growth have raised expectations of a rate cut by the Bank of England. On Wednesday BoE monetary policy member Michael Saunders said that it would be appropriate to maintain an expansionary policy stance and possibly cut rates further. His dovish rhetoric joins that of colleagues Carney, Vileghe and Tenreyo earlier in the month.
If UK macro-economic data doesn’t pick up over the next two weeks, then a BoE rate cut on 30th January is looking pretty likely. The prospect of looser monetary policy weighed on the value of the pound.
Today investors will look towards the BoE bank liabilities and credit report for further clues over the health of the UK economy.
Will German Inflation Drag Euro Southwards?
The euro advanced across the session on Wednesday as investors became increasingly optimistic that the US – China trade deal will, which was finally signed by the two sides today, could boost the foreign trade reliant German economy.
Gains in the euro were capped by data from the bloc. German GDP data showed that Europe’s largest economy expanded by just 0.6% year on year, a six-year low and down from 1.5%. Meanwhile industrial production from the bloc disappointed, declining by -0.2%.
Looking ahead today investors will be watching German consumer price inflation and pour over the minutes from the December European Central Bank meeting. Analysts are expecting German inflation to remain steady at 1.5%. Any signs of weakness could bring the euro lower.
The minutes from December’s European Central Bank meeting and a speech by ECB President Christine Lagarde could drive the euro.
|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.