Pound Euro Exchange Rate Tumbles as UK Inflation Slumps to New Three-Year Low

GBP/EUR Exchange Rate Slumps on Disappointing UK CPI Figures

The Pound to Euro (GBP/EUR) exchange rate is on the back foot again this morning, in response to a weaker-than-expected inflation reading from the UK.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1669, down around 0.3% from today’s opening level.

Pound (GBP) Slips as Weak Inflation Increases BoE Rate Cut Speculation

The Pound (GBP) is trending lower this morning, after the UK’s latest consumer price index (CPI) bolsters expectations for a possible rate cut from the Bank of England (BoE) later this month.

According to data published by the Office for National Statistics (ONS), headline inflation in the UK unexpectedly slowed from 1.5% to 1.3%, missing expectations it would hold steady and also striking its lowest levels since November 2016.

The disappointing CPI figures will further fuel expectations that the BoE may cut interest rates this month as it grapples with a slowing economy.

Speaking in Northern Ireland, just before the CPI figures were published, BoE policymaker Michael Saunders suggests the bank need to act quickly in order to prop up growth.

Saunders said:

‘It probably will be appropriate to maintain an expansionary monetary policy stance and possibly to cut rates further, in order to reduce risks of a sustained undershoot of the 2% inflation target.’

‘With limited monetary policy space, risk management considerations favour a relatively prompt and aggressive response to downside risks at present.’

Saunders joins a growing chorus of BoE members who have suggested a rate cut may be necessary over the past week, which has resulted in the odds of a January rate cut to jump to around 50%.

Euro (EUR) Subdued as German Growth Hits Six-Year Low

At the same time, the Euro (EUR) is struggling to find momentum this morning as markets react to the publication of Germany’s full-year GDP figures.

Germany’s federal statistics office, Destatis reported Germany’s economy grew by just 0.6% in 2019, in line with market expectations.

This was a marked slowdown from the already weak 1.5% growth recorded in 2018 and was the country’s worst rate of growth since 2013.

The slowdown in GDP comes as Germany’s goods exports have been hit by global trade tensions, crippling a key driver of economic growth in the country.

With the Eurozone’s economic powerhouse struggling, EUR investors will no doubt be concerned about what knock on effects this could have for the rest of the bloc.

GBP/EUR Exchange Rate Forecast: Rebound in UK Retail Sales to Buoy Sterling?

Looking ahead to the latter half of the week, the Pound to Euro (GBP/EUR) exchange rate may find some support with the publication of the UK’s latest retail sales data.

Economists forecast December will have brought a solid rebound in retail sales, with sales growth expected to surge from -0.6% to 0.5% last month, as December’s figures include Black Friday.

However, any upside in Sterling could prove limited, with the bounce being down to temporary factors, it is unlikely to quell BoE rate cut speculation.

Meanwhile, in focus for EUR investors will be the final release of the Eurozone’s CPI figures for December.

These are expected to confirm Eurozone inflation finally began to accelerate again at the end of 2019, buoying hopes the bloc is starting to stabilise and offering support to the Euro.

Matthew Andrews

Contact Matthew Andrews