After German inflation was confirmed to have risen on the month in November the Euro (EUR) has continued to dominate the Pound (GBP) as markets remain unenthusiastic in the wake of the latest Bank of England (BoE) policy meeting.
BoE Leaves Interest Rates on Hold, no 2016 Rate Hike Hints Weigh on Pound (GBP)
Although there had been no expectation that the Bank of England (BoE) would opt to raise interest rates at its final policy meeting of the year, markets were generally disappointed by the more dovish stance taken by policymakers. The Monetary Policy Committee (MPC) voted 8-1 in favour of holding interest rates at 0.50%, with the meeting minutes indicating that there was unlikely to be any particular shift towards a rate hike in the near-term. Both global slowdown pressures and weaker domestic inflation were highlighted as particular concerns. As a result the Pound (GBP) failed to rally against rivals, remaining on a downtrend against the Euro (EUR) throughout Thursday.
Members of the European Central Bank (ECB) governing council strongly suggested that the ECB would be willing to expand quantitative easing in order to further support growth in the Eurozone. As this ran somewhat counter to the message of last week’s decision to introduce more limited loosening measures pundits were uninclined to move away from the single currency, helping to push the GBP/EUR exchange rate lower.
Euro Currency News: EUR Dominant as German Consumer Price Index Climbs
The Euro continued to strengthen on Friday thanks to the confirmation that Germany’s Consumer Price Index had ticked higher in November. As inflation rose from 0.3% to 0.4% this suggests that the Eurozone’s powerhouse economy is still strengthening, in spite of negative global headwinds and the ongoing Volkswagen emissions scandal. Consequently, regardless of the rapid approach of the anticipated Fed interest rate take-off, the common currency has been advancing bullishly across the board today.
There has been little incentive for investors to return to the Pound, however, as domestic Construction Output failed to improve as far as forecast. Clocking in at 0.2% rather than 1.0% this offered fresh disappointment for pundits, outweighing the more positive nature of the latest BoE/GfK 12-month inflation forecast.
GBP/EUR Exchange Rate Forecast: Pound Predicted to Rally on Stronger UK Inflation
Some of the buoyancy may leave the single currency this afternoon if US Advance Retail Sales are shown to have improved in November, with the chances of the Fed raising interest rates set to strengthen in response. As the much-anticipated Federal Open Market Committee (FOMC) decision draws closer the appeal of the Euro is widely expected to soften.
Into next week Sterling will be looking to rally on the back of the UK’s November Consumer Price Index, with a surge in demand likely if domestic inflationary pressure is shown to have picked back up.
Current GBP, EUR Exchange Rates
At time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was trending lower around 1.3808, while the Euro to Pound Sterling (EUR/GBP) pairing was making gains in the region of 0.7241.
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