Pound to Euro Exchange Rate Edges Higher as Turkish Currency Concerns Keep Euro Pressured
Demand for the Pound Sterling to Euro (GBP/EUR) exchange rate was a little sturdier on Wednesday morning, as investors digested Britain’s latest inflation data which printed slightly better than expected.
Since last week’s tumble to a nine-month low, GBP/EUR has been gradually recovering and is currently up around 2 cents from last week’s worst levels.
This week’s UK data has been decent so far, but not strong enough to help the Pound (GBP) to mount a more solid recovery against the Euro (EUR).
On top of this, demand for the Euro has been limited on Turkish Lira (TRY) jitters, making it easier for GBP/EUR to rise.
Pound (GBP) Exchange Rates Edge Higher as UK Inflation Avoids Contraction
Britain’s July Consumer Price Index (CPI) inflation rate had been forecast to contract month-on-month, but the results came in slightly better than investors had been expecting.
The month-on-month inflation rate remained at a stagnant 0.0%, rather than worsening to -0.1% as forecast. Meanwhile, the yearly figure rose from 2.4% to 2.5% as expected. Yearly core inflation remained at 1.9% as expected.
Still, while the data did beat expectations slightly and help the Pound (GBP) to climb versus the Euro (EUR), Sterling’s appeal was weighed as the data also indicated that Britain’s cost of living squeeze was continuing.
According to Tej Parikh, Senior Economist at the Institute of Directors (IoD):
‘The downward momentum we saw in prices earlier this year appears to be petering out, while high oil prices and hikes in utility bills have kept inflation elevated in recent months.
For households this isn’t good news, as the already weak growth in their pay packets is being further eroded by high prices. This is likely to weigh down consumer spending, posing fresh problems for embattled high street businesses.’
It followed Tuesday’s mixed UK job market data, which showed the unemployment rate improve but wages unexpectedly slow.
Some analysts are still unconvinced that the Bank of England (BoE) was right to hike UK interest rates in its August policy decision, and this has limited Pound appeal.
Euro (EUR) Exchange Rates Continue to Feel Pressure from Turkish Currency Issues
While the Turkish Lira (TRY) was bought back slightly from its recent lows on Wednesday, concerns about how the currency’s major fall over the last week could impact neighbouring markets have kept pressure on the Euro (EUR).
European Central Bank (ECB) officials have warned that due to the Eurozone’s connections to Turkey, the Turkish Lira’s crisis could have a negative impact on the health of Eurozone banks.
This has kept the Euro unappealing for most of the week so far, and Eurozone data has been unable to change that.
Tuesday’s Eurozone growth projections for Q2 did beat forecasts in key prints, but Eurozone industrial production was much worse than forecast and worsened concerns that recent US protectionism is having a negative impact on Eurozone factory activity.
Pound to Euro (GBP/EUR) Forecast: UK Retail Sales and Eurozone Inflation in Focus
Britain’s economic data this week has not been strong enough to help the Pound to Euro (GBP/EUR) exchange rate mount a more solid recovery, but Thursday’s UK retail sales could give Sterling (GBP) more of a boost if it impresses.
UK retail sales are forecast to have climbed 0.2% month-on-month and firmed from 2.9% to 3.0% year-on-year.
If UK retail sales are even better than expected it will make investors more hopeful that UK consumer activity is resilient amid the Brexit process, which would make Pound traders more confident that the Bank of England (BoE) was right to hike UK interest rates.
Of course, the opposite is also true. If UK retail sales fall short investors may become even more concerned about how Brexit jitters are impacting Britain’s economic outlook, and the Pound would weaken.
Eurozone trade balance data will be published on Thursday too, but Friday’s Eurozone inflation results from July are likely to be much more influential.
Surprising Eurozone inflation data could influence European Central Bank (ECB) interest rate hike bets and the direction of Pound to Euro (GBP/EUR) exchange rate movement.