Pound to Euro (GBP/EUR) Exchange Rate Forecast to Reach 3-Week High over Eurozone Inflation Data

The Pound to Euro (GBP/EUR) exchange rate advanced further on Friday and is likely to reach a three-week high as dire retail sales data out of Germany ruined any sense of optimism over slightly improved Eurozone inflation data.

Germany is quickly becoming one of the sick men of Europe as economic data out of the region’s largest economy continue to come in well below expectations and heighten fears that the nation is sliding towards recession. Due to the sheer size of the German economy and its influence on the wider Eurozone it could drag the entire region back into a triple dip recession, something that send the Euro tumbling.

Retail sales data released early in the session showed that German retail sales posted their biggest decline in more than seven years in September. The sharp decline adds to the dire data released earlier in the month, which showed that the nation’s industrial sector appears to be grinding to a halt.

According to the German Federal Statistics Office, retail sales tumbled by 3.2%, wiping out the 1.5% rise recorded in August and was far, far worse than the -1% figure forecast by economists.

Also dragging upon sentiment towards the single currency was the release of data out of Italy, which showed that unemployment increased in September to 12.6%, economists had been forecasting for a fall to 12.4%.

Unemployment across the wider region stayed steady at the uncomfortably high level of 11.5%. The fact that unemployment has not fallen suggests that the measures taken to stimulate growth and job creation across the Eurozone have still not worked.

The big news of the day however was the release of the latest Eurozone inflation data. According to the European Union’s statistics office Eurostat, inflation in the 18 nations that comprise the Eurozone edged up slightly this month. Inflation inched higher to 0.4%, matching expectations. Despite the slight rise the figure remains well below the European Central Banks inflation target of just under 2%.

The slight rise may on the surface appear to be a positive move but the Eurozone’s core inflation rate, which strips out some of the volatile components of the data unexpectedly declined from September’s reading of 0.8% to 0.7%.

The continuously weak inflation data is piling pressure onto the ECB to take action that is more decisive. Many economists are expecting that the Central Bank will have to introduce a quantitative easing programme and buy Eurozone sovereign bonds in an attempt to increase growth and inflation.