Sluggish Eurozone Inflation Data Overshadows German Unemployment Fall
The total number of people unemployed in Germany fell by 14,000 in December, almost double the expected drop of 8,000. The overall Unemployment figure has remained steady at 6.3% as predicted. The positive figures did little to improve Euro fortunes, however, as traders turned their attention to the Eurozone inflation data, which has since disappointed. Core CPI has remained at 0.9%, while the estimated CPI held steady at 0.2%, both defying predictions of a rise.
Yesterday…
Revised Storm Damage Prediction Puts Economic Cost at Nearly £3 Billion
UK Consultancy firm PwC has revised its estimated cost of the storms which assaulted the UK during December. Storm Frank is still currently causing flood warnings and threatening further disruption, following on from Storm Desmond and Storm Eva earlier in December. A week ago, PwC estimated £900-£1.2 billion worth of damage had been caused by the severe weather. The new forecast, which is the second revision to the original figure, puts the cost around £2-£2.8 billion.
Earlier…
The Pound Sterling to Euro (GBP/EUR) exchange rate dipped into negative territory following the release of German inflation figures, which fell rather than increasing as originally forecast.
Cooling Business Attitudes Towards EU Membership Softens GBP/EUR Exchange Rate
UK business sentiment towards the European Union is shifting towards the negative according to a study of CFOs by Deloitte. Since Q2 2015 the number of finance chiefs who oppose a ‘Brexit’ has fallen from 74% to 62%. The number of CFOs completely in favour of leaving the EU has risen from 2% to 6%, mirroring consumer sentiment which has also seen the overwhelming majority held by EU supporters faltering. An increasing number of Chief Financial Officers (28%) now claim their decision will be based upon the outcome of David Cameron’s negotiations on EU membership reform. The number of CFOs who are uncertain of their stance has risen from 1% to 4%.
The gradual shift in attitudes towards Britain’s EU membership, with both public and business opinion becoming less definitive, uncertainty towards the outcome of the in-out referendum is likely to weigh heavily on Sterling over the coming months. A pro-EU group, Britain Stronger in Europe, claims that Britain could risk losing up to 80% of its total exports – £236 billion – if it were to leave the European Union. The Pound has also been affected by a poor performance by the manufacturing sector, with the Markit PMI dropping from 52.5 to 51.9, as well as news that fears over the Chinese economy wiped £34 billion off the FTSE 100 index in the first few hours of trading.
The GBP/EUR exchange rate is currently trending in the region of 1.3580.
Euro to Pound Sterling (EUR/GBP) Exchange Rate: Gains Erased by German CPI Drop
The German Consumer Price index has unexpectedly dropped, erasing earlier gains made by the Euro against Pound Sterling and pushing the EUR/GBP exchange rate into negative territory. The CPI fell year-on-year (YoY) from 0.4% to 0.3% instead of rising to 0.6%, while the EU Harmonised index dropped from 0.3% to 0.2% instead of hitting 0.4%. The CPI fell -0.1% month-on-month (MoM).
The drop in figures calls into question whether the European Central Bank’s (ECB) quantitative easing measures are sufficient to raise inflation in the Eurozone. According to Jennifer McKeown at Capital Economics, ‘there is still very little evidence that solid economic growth and the healthy labour market are having an inflationary impact in Germany. And with deflationary pressures persisting elsewhere in the Eurozone, we still think that the ECB will have to do more if it is to reach its inflation target in the medium term.’
Following the news, the Euro has slipped into negative territory against Pound Sterling, although it remains bullish against a number of currencies, making gains of 0.9% against the Canadian Dollar (CAD), 1.10% against the Poland Zloty (PLN), 1.4% against the New Zealand Dollar (NZD) and 1.5% against the Australian Dollar (AUD).
The EUR/GBP exchange rate is currently trending between 0.7350 and 0.7424.
GBP/EUR Exchange Rate Forecast: Will Eurozone CPI Figures Repeat German Performance?
Tomorrow sees the release of German labour market data, as well as Eurozone CPI figures. Inflation in the Eurozone is forecast to have increased, although with today’s surprise result from the German CPI, traders may be cautious ahead of the release thanks to concerns of a similar performance.
Current GBP, EUR Exchange Rates
The Pound Sterling to Euro GBP/EUR exchange rate is currently trading between 1.3461 and 1.3603 while the Euro to Pound Sterling (EUR/GBP) exchange rate has moved between highs of 0.7424 and lows of 0.7350.
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