Better-than-Expected French Inflation Puts Pressure on Pound Euro Exchange Rate
A smaller-than-expected deterioration in the latest French inflation rate helped to push the Pound to Euro (GBP/EUR) exchange rate lower.
While the inflation rate still fell into negative territory on the month in February, dipping from 0.2% to -0.1%, this was not enough to put any pressure on the Euro (EUR).
Investors instead took encouragement from the fact that the headline year-on-year inflation rate remained in positive territory at 0.4%.
Although inflationary pressure across the Eurozone remains some way short of the European Central Bank’s (ECB) 2% target this failed to dent demand for the single currency.
As markets already see little chance of the ECB tightening monetary policy in the months ahead there was little room for fresh Euro losses.
Plunge in UK Car Production Drags Down Pound Sterling
Support for Pound Sterling (GBP), meanwhile, diminished in response to a sharp decline in January’s UK car production data.
Even though forecasts had pointed towards another significant annual decline in production investors were still caught off guard by the extent of the -27.3% contraction.
This offered fresh evidence of the pressure coming to bear on the UK manufacturing sector, especially as reports of border delays continue to pick up.
With the earlier sense of optimism over the prospect of second quarter economic recovery fading GBP exchange rates were left biased to the downside ahead of the weekend.
Solid Finalised Eurozone Manufacturing PMIs to Offer Further Euro Encouragement
February’s finalised set of Eurozone manufacturing and services PMIs may prompt fresh volatility for the Pound to Euro exchange rate next week.
Confirmation that the Eurozone manufacturing sector remained in a solid state of growth this month could help to keep a floor under EUR exchange rates.
On the other hand, the relative weakness of the services PMIs may put a fresh dampener on demand for the single currency.
With the weak service sector likely to drag on the first quarter Eurozone gross domestic product the lingering risk of a double-dip recession looks set to keep the Euro under a degree of pressure.
Softer Mortgage Approvals Set to Weigh on Pound Exchange Rates
On the other hand, the mood towards the Pound may well sour on the back of the latest UK mortgage approvals and consumer credit figures.
Evidence that mortgage approvals fell in January would offer fresh cause for concern over the health of the domestic housing market, a sector that has helped to shore up the economy over the last year.
With the end of the stamp duty holiday fast approaching the housing market looks set to come under greater pressure, potentially stifling growth in the face of the current national lockdown.
Until consumer confidence shows signs of holding up, driving further house buying, the Pound to Euro exchange rate looks set to remain biased to the downside.