Pound Sterling to Euro (GBP/EUR) Exchange Rate Strengthens after Eurozone CPI

The Pound to Euro (GBP/EUR) exchange rate was trading back above the 1.27 level on Thursday as investors ignored a wealth of minutely improved Eurozone data and focused on the key German Inflation Rate report, which is forecast to show that the region’s largest economy edged closer to deflation in October.

Data released early in the session showed that the annual rate of inflation in Spain remained below the zero mark this month as it declined by 0.1%, adding to the previous fall of 0.2%. The report-underlined fears over deflationary pressures in the Eurozones fourth largest economy and the figure were worse than economist expectations.

A separate report also showed that the rate of growth in Spain eased in the third quarter to 0.5%, down from the 0.6% seen in the preceding quarter. On annualized rate, Spain’s gross domestic product rose 1.6% in the third quarter, meeting forecasts and up from growth of 1.3% in the preceding quarter.

The Euro would normally find support from the release of positive unemployment data out of Germany, which showed that unemployment unexpectedly dropped by its largest amount in six months in October. The number of Germans out of work fell by 22,000 to 2.887 million. Economists had been expecting a rise of 4,000. The data eased some fears over the strength of the nation’s jobs market but was not strong enough to reduce fears over the health of the overall economy.

‘The current economic uncertainty isn’t reflected in the labour market. The Autumn revival of the job market pushed unemployment down significantly,’ said Frank-Juergen Weise, president of the labour agency.

Elsewhere in the Eurozone, data out of Portugal and Belgium came in slightly better than forecast but was not enough to improve sentiment towards the Euro.

Other data released in the Eurozone showed that sentiment in the 18-member currency bloc unexpectedly improved in October to improve from the one-year low recorded in September. The data raised some hope that the struggling region could be seeing some signs of improvement. All business sectors saw optimism increase, especially the construction and retail sectors.

Investors are wary that the German inflation figures will disappoint

‘On the inflation side, Euro weakness and its impact on inflation has been reduced by sharply falling commodity prices. The Euro could come under more pressure if German inflation falls short of expectations,’ said an analyst from Morgan Stanley.

GBP/EUR Exchange Rate Forecast

The mostly positive data released in the morning has been pushed to the background as all eyes focus upon the German Inflation data. Economists are forecasting that on a monthly basis inflation fell by -0.1%. On an annual basis, the figure is forecast to come in at 0.9%. Also of interest to traders, will data out of the USA. Strong GDP and Jobless Claims data will also weigh upon the Euro, as demand for the ‘Greenback’ is likely to increase.

UPDATE

The Pound Sterling to Euro exchange rate is currently trending in the region of 1.2719.

British economic data has been reasonably disappointing on Friday, although the Pound has advanced against the single currency by around 0.28%. The Consumer Confidence Survey was forecast to equal the previous figure of -1, but the actual data dropped to -2.

European data has produced mixed results thus far on Friday. Year-on-year German Retail Sales eclipsed the median market forecast of a rise from 0.1% to 1.2%, with the actual data increasing to 2.3%. Monthly German Retail Sales, however, declined beyond the market consensus of a drop from 1.5% to -0.9%, with the actual result dropping to -3.2%.

The common currency is likely to soften gradually ahead of the Eurozone Consumer Price Index data due for publication later on Friday morning.

UPDATE
The GBP/EUR pairing pushed above the 1.27 level on Friday as the Eurozone’s inflation report did little to counter concerns that the European Central Bank will be introducing additional stimulus measures in the near future.

Demand for the Pound may have been limited by an unexpected decline in the level of UK consumer confidence, but the British asset was still able to outperform its broadly softening European peer.

Next week both the Bank of England and European Central Bank are due to deliver their interest rate decisions. While the BoE’s announcement is unlikely to cause any market movement, the ECB’s could have an impact.