GBP/EUR Exchange Rate Economists Forecast Weaker Inflation May Prompt BoE to Hold the Course
The Pound Euro (GBP/EUR) exchange rate fell off a cliff edge this morning as some weak inflation figures led to investors altering their expectations for a rate hike from the Bank of England (BoE) next month.
At the time of writing GBP/EUR is down around 0.6%, with the pairing having fallen over half a cent from the session’s opening levels.
Pound (GBP) Nosedives as Inflation Misses
The Pound (GBP) exchange rate suffered a sharp selloff against the Euro (EUR) this morning as the UK’s latest CPI figures printed lower than expected.
According to data published by the Office for National Statistics (ONS), the UK’s inflation rate slid from 2.7% to 2.5% in March, missing forecasts that it would hold steady and striking new one-year low.
The Office for National Statistics said;
‘The largest downward contribution to the change in the rate between February 2018 and March 2018 came from prices for clothing and footwear rising by less than they did a year ago, with the effect coming mainly from a range of items of women’s clothing.’
The unexpected drop in inflation has prompted some investors to question the whether the BoE is still likely to target a rate hike next month, something that has weighed heavily on the GBP exchange rate this morning.
Euro (EUR) Gains Hampered by Eurozone CPI Report
Meanwhile the Euro exchange rate was forced to walk back some of its gains this morning following the release of the Eurozone’s own CPI figures.
While last month’s preliminary CPI reading suggested that the Eurozone’s inflation rate would climb to 1.4%, the final print suggests that it saw a more modest rise to 1.3%.
This leaves inflation even further from the European Central Bank’s (ECB) target rate of 2% than initially thought, weakening the appeal of the Euro as it suggests that the bank is still some way of its next hike.
GBP/EUR Forecast: Contraction in Retail Sales to Extend the Pounds Losses?
Looking ahead the GBP/EUR exchange rate may continue to slide into the second half of the week as the UK publishes its latest retail sales figures.
Economists forecast that tomorrow’s data will confirm sales contracted 0.5% in March after previously growing 0.8% in February, likely prompted another drop in the Pound exchange rate.
While the decline is likely only temporary –driven by consumers staying home in the cold weather last month- it will still be a disappointing end to the third quarter and may raise further concerns over the UK’s economic growth at the start of the year.
Meanwhile EUR investors are likely to turn their attention to next week’s PMI figures, with the Euro exchange rate likely to strengthen if growth in the Eurozone’s private sector picked up as forecast in April.
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