Pound to Euro (GBP/EUR) Exchange Rate Advances after UK CPI, Eurozone Industrial Production Data

The Pound to Euro Exchange Rate was little moved on Monday due to a lack of domestic UK data and as investors chose to ignore worse-than-forecast industrial production data out of the Eurozone.

The single currency managed to tick higher despite the data as concerns over a new banking crisis were eased after the Bank of Portugal took quick and decisive action to quell a possible panic spreading throughout the already shaky region.

Investors are also looking ahead to Monday evening’s speech by European Central Bank President Mario Draghi.
Mr Draghi will address a European Parliamentary Committee and it is likely that the Euro’s stubbornly high value will be raised. If Draghi tries to talk down the currency then we can expect the Pound to make further gains and the US Dollar to recover ground.

Concerns that the Eurozones so called ‘recovery’ has stalled kept the single currency lower against the Pound and other major peers. Some economists are even forecasting that the Euro region saw its manufacturing sector contract in the April-June quarter. If so then the recovery has turned once more into weakness.

“There is now a grave danger that the sector contracted in the second quarter thereby limiting Eurozone GDP growth. While May’s 1.1% month-on-month drop in Eurozone industrial production likely overstates the sector’s weakness, it is notable that the latest survey evidence has indicated a loss of momentum although it does still point to expanding activity,” said Howard Archer, Chief economist at IHS Global Insight.

According to Eurostat, Industrial output in the 18-member Eurozone fell by 1.1%, its worst monthly performance since September 2012. On a year on year basis output is just 0.5% higher. Hopes for the recovery which was seen at the start of the year seems to have faltered and in some cases even reversed.

The production of intermediate goods fell by 2.4%; non-durable consumer goods were down by 2.2%. Durable consumer goods production fell by 1.8% and capital goods (heavy duty machinery) dropped by 0.5%. The data adds to last week’s disappointing output reports from Holland, Germany, Italy and France. Portugal which saw output decline by -3.6%.

Further weakness for the Euro could come from the crisis in Ukraine. The German economy is thought to have been negatively affected by the conflict and tensions rose further on Monday after Russia warned that it is considering using ‘precision strikes’ against Ukrainian forces in retaliation to cross border shelling which killed one Russian on Sunday.

UPDATED: 09:40 GMT 15 July, 2014

Pound to Euro Recovers Losses after UK Inflation Figures

While yesterday’s decline in industrial production in the Eurozone had little impact on the Pound to Euro (GBP/EUR) exchange rate, the pairing surged by 0.45% on Tuesday after the UK’s Consumer Price Index delivered a positive surprise.

The rate of inflation in the UK climbed closer to the Bank of England’s 2% target in June, with non-core CPI coming in at 1.9% year-on-year instead of 1.6% as expected.

On the month, consumer price inflation advanced by 0.2% – beating estimates for a decline of -0.1%.

Last week saw the release of a string of lacklustre economic reports for the UK, but today’s data adds to the argument in favour of the figures being a blip rather than a sign of things to come.

With ZEW economic sentiment surveys for the Eurozone and its largest economy still to be released today, further Pound to Euro (GBP/EUR) exchange rate movement can be expected.

Euro Exchange Rates