GBP/EUR: Pound Tumbles vs. Euro As Brexit Project Fear Steps Up A Gear
  • Euro (EUR) rises for a 3rd day on US Dollar weakness
  • German inflation -0.5% mom and -0.1% yoy contrasting with strong US inflation of +0.6%
  • US Congress remains in stalemate over additional US stimulus, dragging on US Dollar (USD)
  • US jobless claims expected to show only a very slight improvement compared to last week

The Euro US Dollar (EUR/USD) is extending gains for a third straight session on Thursday. The pair settled in the previous session +0.3% at €1.1782. At 07:15 UTC, EUR/SD trades +0.4% at €1.1830. This is at the top end of the daily traded range.

The Euro is on the rise despite Germany experiencing deflation. German consumer prices declined -0.5% month on month in July, in line with forecasts. On an annual basis consumer prices were down -0.1%.

The fall in inflation was mainly attributed to a reduction in Value Added Tax (VAT). The German government reduced VAT as part of its stimulus package to support the German economy through the economic crisis.

Weaker inflation in Germany is in sharp contrast to the impressive US inflation reading. US inflation, as measured by consumer price index, saw a better than expected +0.6% month on month increase in July. Core CPI was also +0.6% in its largest sequential increase since 1991.

Delving deeper into these figures, the sharp increase in inflation was primarily down to motor vehicles and apparels, whilst food prices eased after climbing during the pandemic. This level of inflation is unlikely to be sustained but it certainly can’t be ignored as it points to an encouraging recovery.

Yet despite the strong data, the US Dollar is trading lower as the Democrats and Republicans remain far apart on the next stimulus package. With 16 million Americans out of work and the federal supplementary unemployment benefit having expired at the end of July, the need for a deal to be reached is clear. Without an additional stimulus package the US economic recovery could stall.

Attention will now turn to US jobless claims. Analysts are expecting 1.12 million Americans to have signed up for unemployment benefits, this is down marginally from the 1.18 million recorded last week. An increase in claimants could unnerve US Dollar investors and send the greenback lower.