Headlines
• GBP/EUR Holds Above 1.42 in Wake of Paris Attacks
• UK Inflation Remains in Negative Territory
• British Core Inflation Betters Estimate
• Euro Weakness Provokes US Dollar Uptrend
GBP/EUR – Sterling holds above 1.42 as Paris Attacks Weigh on Euro Demand
Over the past week the Pound Sterling to Euro (GBP/EUR) exchange rate has remained in the region of a three month best rate of 1.4265.
On Tuesday morning the Pound Sterling to Euro exchange rate edged higher following mixed results from British inflation data. October’s annual Consumer Price Index remained in negative territory for the second-consecutive month, confirming the Bank of England’s (BoE) predictions that inflation will be well below target for some time to come. On the month, October’s CPI equalled the median market forecast 0.1%. However, October’s annual Core CPI bettered the market consensus of 1.0% with the actual result climbing to 1.1%.
This data saw the Pound advance versus many of its currency rivals, albeit fractionally. This is because Bank of England (BoE) Governor Mark Carney recently stated that the Monetary Policy Committee (MPC) will look at the core inflation measure to gauge the timing of a benchmark interest rate hike.
Mixed European economic data has done little to prevent Euro weakness with the tragic events in Paris weighing on investor confidence. The prospect of wider policy divergence between the European Central Bank (ECB) and the Federal Reserve is also weighing on demand for the common currency. Although November’s German ZEW Economic Sentiment Survey eclipsed the market consensus of a rise from 1.9 to 6.0 with a result of 10.4, the German ZEW Current Situation Survey failed to meet with expectations. Adding to damp demand for the Euro was the Eurozone ZEW Economic Sentiment Survey which declined from 30.1 to 28.3.
GBP/USD – ‘Cable’ Trends in the Region of 1.52 on Safe-Haven Demand
The Pound Sterling to US Dollar conversion rate was trending within the range of 1.5152 to 1.5217 during Tuesday’s European session.
After the Euro weakened considerably following the devastating terrorist attacks in Paris, the US Dollar rallied thanks to negative EUR/USD correlation and heightened demand for safe-haven assets. Even comparatively poor data thus far this week, which saw manufacturing output contract beyond expectations, wasn’t enough to offset US Dollar gains. However, US Dollar overvaluation remains a significant concern as a potential drag on economic progress which could delay the Federal Open Market Committee (FOMC) from raising the overnight cash rate.
USD/GBP – Trending within a Limited Range despite Positive UK Core Inflation
Over the past week the US Dollar to Pound Sterling (USD/GBP) exchange rate was trending within the range of 0.6560 to 0.6620.
Despite overvaluation concerns and a succession of disappointing domestic data publications, the US Dollar continues to hold a position of strength versus its major peers. This is mostly due to the Euro downtrend. EUR/USD is the world’s most traded currency paring so positive or negative movement from one currency usually has the opposite effect on the other.
EUR/USD – Euro declines on geopolitical uncertainty, policy divergence
The Euro to US Dollar (EUR/USD) exchange rate was trending within the range of 1.0641 to 1.0691 during Tuesday’s European session.
In addition to the Paris attacks weighing on demand for the common currency, geopolitical uncertainty and the heightened potential for widening policy divergence between the European Central Bank (ECB) and the Federal Reserve is weighing on demand for the Euro. With a new socialist government being formed in Portugal and anti-austerity strikes taking place in Greece, geopolitical uncertainty is having a significantly detrimental impact on demand for the single asset. The Euro to US Dollar conversion rate is likely to hold a weak position irrespective of domestic data with so many factors contributing to the Euro downfall.