Upbeat Eurozone Inflation Figures Pressure GBP/DKK Exchange Rate
The Pound Danish Krone (GBP/DKK) exchange rate was put on the defensive this morning as markets reacted to the latest Eurozone inflation figures.
At the time of writing GBP/DKK has fallen 0.4%, with the pairing relinquishing much of Tuesday’s gains.
Danish Krone’s (DKK) Advance Short
With the Danish Krone being pegged to the value of the Euro (EUR) it has risen hand-in-hand with the single currency this morning on the back of the Eurozone’s latest CPI figures.
While headline inflation was shown to have fallen this month, the Euro was still able to advance thanks to an uptick in the core reading.
The data revealed that when volatile items such as food and fuel are stripped out, underlying inflation actually advanced in January, rising to 1%.
This will be a relief to investors after core inflation held at just 0.9% for three consecutive months at the end of 2017 and suggests that price growth may be a little more robust this year.
Most importantly however is that this edges inflation a little closer to the European Central Bank’s (ECB) target, something that may push the bank to be a little more hawkish in the coming months.
Pound (GBP) Slides despite Increased Consumer Optimism
After mounting a considerable recovery on Tuesday the Pound is sliding again this morning despite some upbeat consumer confidence figures.
According to data published by research institute GfK, UK household sentiment improved this morning, with the confidence index climbing from a four-year low of -13 to -9.
This beat expectations that it would remain unchanged at the start of the year and indicates households are becoming a little more confident about their finances.
This in turn could translate into increased consumer spending in the coming months if families feel they can loosen the purse strings a little, something that will be a welcome relief to investors.
However analysts warn that that the boost in confidence could prove to be short-lived unless wage growth is able to close the gap with inflation.
Joe Staton, head of market dynamics at GfK said:
‘In the absence of good news about rising wages and declining inflationary pressures, this off-trend number could be a temporary blip rather than a strong sign of recovery.’
The renewed weakness in the Pound appears to be largely on the back of reports that EU officials have again rejected calls for a bespoke trade deal for the City, with it looking increasingly likely that some financial institutions will relocate operations to the continent post-Brexit.
GBP/DKK Exchange Rate Forecast: UK Manufacturing PMI may Strengthen Sterling
Looking ahead the GBP/DKK exchange rate may trend higher in the second half of the week as the UK publishes its latest Manufacturing PMI.
Economists forecast that the sector will have seen increased activity this month, with the index expected to climb from 56.3 to 56.5, possibly strengthening the Pound.
Denmark will also release its latest manufacturing PMI tomorrow, however an expected dip in factory activity is likely to pressure the Danish Krone.