The Euro to Pound Sterling (EUR/GBP) exchange rate was trading steadily in the region of 0.75 because of mixed data releases from both the Eurozone and UK.
The Euro exchange rate briefly dipped following the release of data, which showed that inflation across the 19-member currency bloc slipped deeper into deflation territory and its weakest level since 2009. The report increases concerns that the region could become mired in a deflationary cycle, but also validates the European Central Bank’s decision to introduce a €1 trillion quantitative easing programme.
According to Eurostat, deflation deepened as inflation fell by -0.6% on a year on year basis. The drop adds to the -0.2% decline recorded in December and core inflation fell back to a reading of 0.5% from the previous month’s figure of 0.7%.
Energy prices were shown to have fallen by 8.9%, unprocessed food fell by 0.9%.
Despite the poor inflation data the Euro’s losses were restrained by a separate data release, which showed that unemployment across the currency bloc dipped unexpectedly from 11.5% to 11.4%, it was the first change recorded in three months. According to Eurostat, the number of Eurozone citizens out of work fell by 157,000 to 18.12 million.
The single currency ticked higher against the Pound despite the release of the poor inflation data and other reports out of Eurozone member nations. Retail sales in Greece fell sharply, Business confidence in Spain declined and Industrial production in Portugal tumbled.
Sterling meanwhile softened despite data showing that consumer confidence in the UK jumped more than expected in January to reach a five-month high. The positive report will be a boon to the Conservative led government ahead of May’s general election.
‘With less than 100 days before the election, this big jump in the index will be very welcome news for the government. If next month sees another rise, that will definitely signal good news for the government, but if not, it will suggest that the growth in GDP is not making people feel better off,’ said Nick Moon, managing director of social research at GfK, the group that did the report.
The Pound came under some pressure however from a separate report released by the Bank of England, which showed that lending to individuals fell to £2.2 billion in December from £3.1 billion in November, whose figure was revised down from a previously estimated £3.3 billion. Analysts had expected net lending to individuals to hit £3.2 billion last month.
The EUR/GBP exchange rate is forecast to experience more volatility next week due to the release of numerous PMI reports for both the Eurozone and UK.
