Although the Pound was feeling the pressure ahead of the publication of the Bank of England’s potentially volatile inflation report, the British asset was able to strengthen against the Euro this morning.
Yesterday Sterling posted its most impressive advance against the Euro for two-weeks thanks to an unexpected surge in UK retail sales, and as European trading began the EUR/GBP pairing was little changed.
While economists were envisaging Pound weakness to follow the BoE’s report, the British asset clung to gains against the Euro as industrial production in the Eurozone fell by considerably more than expected.
Output in the currency bloc fell by 0.7 per cent in December, month-on-month. This followed a negatively revised gain of 1.6 per cent in November and was worse than the drop of 0.3 per cent forecast by economists.
On the year output was up 0.5 per cent vs. estimates for an annual increase of 1.8 per cent.
The data revealed that only three of the Eurozone’s nations saw an increase in industrial production in December, and production in Germany was down 0.7 per cent on the month. Output in the Eurozone’s second and third largest economies (France and Italy)also declined.
The report added to concerns regarding the patchy nature of the Eurozone’s economic recovery, though the Euro did remain trading higher against the US Dollar ahead of the release of advance US retail sales figures.
The Euro extended declines against the Pound after the BoE inflation report was released. In the report the central bank inferred that forward guidance is having the desired affect as confidence is rising. The BoE also intimated that unemployment will fall to 7 per cent at the beginning of this year before falling at a slower but still steady pace for the rest of 2014.
In the report the BoE predicted that UK fourth quarter GDP would be positively revised to 0.9 per cent. The central bank now expects the nation to enjoy growth of 3.4 per cent in 2014 rather than the 2.8 per cent previously expected.
After today’s volatility has passed the EUR/GBP pairing could experience additional movement as a result of tomorrow’s German consumer price index and the publication of the European Central Bank’s monthly report.
Of course Friday’s fourth quarter growth data for the Eurozone and its major economies will also be of considerable interest.
Euro Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,
,Pound Sterling,0.8288,
Euro,,US Dollar,1.3643,
Euro,,Canadian Dollar,1.4988,
Euro,,Australian Dollar,1.5048 ,
Euro,,New Zealand Dollar,1.6299 ,
US Dollar,,Euro ,0.7330,
Pound Sterling,,Euro,1.2067,
Canadian Dollar,,Euro,0.6673 ,
Australian Dollar,,Euro,0.6646,
New Zealand Dollar,,Euro,0.6122 ,
[/table]
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