The Pound Sterling to Euro (GBP/EUR) exchange rate weakened to its lowest level in a week on Tuesday due to the release of positive Eurozone data releases and as political uncertainty weakened the British currency.
The Pound Sterling to Euro (GBP/EUR) exchange rate fell to a session low of 1.3854
Inflation across the 19-member Eurozone came in as forecast in February. According to Eurostat, Monthly inflation improved by 0.6%, an improvement on the preceding months figure of -1.6%. On an annual basis, inflation dipped by -0.3%, an improvement on January’s figure of -0.6%. Core inflation, the measure that excludes volatile items such as food, and oil, came in better than forecast with a reading of 0.7%. Economists had been expecting the core figure to remain unchanged at January’s figure of 0.6%.
Also supporting the Euro was data, which showed that employment in the Eurozone increased by 0.1% on a quarterly basis in the final quarter of 2014. The figure matched forecasts. On an annual basis, employment increased by 0.9%, a better figure than the previous revised one of 0.7%.
Also supporting the Euro was another report published by the ZEW institute, which showed that economic sentiment across the currency bloc improved sharply in March. The ceasefire in Ukraine, which seems to be holding and signs that the Eurozone economy is making a recovery buoyed sentiment in the region. The ZEW Sentiment Index rose from 52.7 to 62.4. The figure smashed forecasts for a reading of 54.94.
Economic sentiment data out of Germany however came in below forecasts as the ZEW index for the Eurozone’s largest economy came in at 54.8. The figure was a slight improvement on the previous months but was below forecasts for a rise to 56.6. A separate current conditions index however did beat expectations by rising from 45.5 to 55.1.
UK Political Concerns Weaken Pound
The Pound Sterling exchange rate was weaker against the majority of its most traded peers as concerns over the outcome of May’s UK general election weighed. With no clear winner expected, economists are worried that negotiations on forming a coalition could take weeks or even months. With the Liberal Democrats expected to lose the majority of their seats other political groups could take up the mantle of kingmaker. Anti-EU party UKIP or the Scottish National Party could find themselves in such a position. It is unclear whether the Tories or Labour would make deals with them.
Sterling will likely see movement on Wednesday as Chancellor George Osborne delivers his budget and as the latest UK unemployment and earnings figures are released.
