GBP/EUR: Concerns Over Eurozone Economic Outlook Weigh On Euro

The British pound is flat against the euro on Thursday.

  • Risk sentiment still strong after China passes Hong Kong law
  • Bank of England’s Saunders neither rules UK negative rates in or out
  • Euro (EUR) breaking out versus the dollar (EURUSD > 1.10)
  • Spain in deflation with a CPI reading of -1.0% y/y

GBP versus EUR was higher by 6 pips (+0.06%) to 1.1134 as of 4pm GMT.

GBP/EUR briefly probed 2-month lows before levelling off underneath 1.115 on Thursday. Yesterday the exchange rate tanked -0.87% leaving it lower by -0.3% for the week.

GBP: Saunders stays dovish

Mostly ‘dovish’ comments from the Bank of England’s Michael Sanders kept any prospect of a recovery in the pound in check after yesterday’s sell-off. Saunders generally maintained the impression given by other UK central bankers that monetary stimulus was more likely to increase than decrease.

Saunders described economic risks as tilted to the downside and sees the risk of the UK falling into a ‘lowflation trap’. A big downside risk to Sterling in recent days has been the mention of negative interest rates but Saunders neither confirmed nor denied he was moving his vote in that direction.

The break lower in the pound to its lowest in two months might have gathered more steam were it not for a generally positive tone across markets where European stocks charged higher for a third day.

EUR: Inflation drops in Europe

With the S&P 500 breaking above 3000 and its 200-day moving average, similar attention has been paid to the EUR/USD and 1.10 as well as its own 200-day moving average. A consistent move beyond 1.10 in the euro versus the dollar would provide a positive influence on other euro currency pairs like EUR/GBP (negative to GBP/EUR).

German consumer price inflation (CPI) rising by a measly +0.6% year-over-year met expectations but when digging in the details the key German economic region of Saxony saw inflation rise by 0.9% rather than the 1.1% expected. Meanwhile in Spain deflation reared its head with a decline of -1.0% y/y.


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