Following on from yesterday’s poor performance for Sterling after Tata Steel announced significant job cuts within the UK, Sterling is once again struggling as GDP figures released this morning appear to have had no positive effect on GBPEUR exchange rates. German consumer price increased by 0.8% in the month of March, slightly better than expected and this has contributed to the Euro strength we’re seeing so far in today’s trading session.
Is now a good time to ease Eurozone QE?
Weaker German data forecasts for April as part of the German GFK consumer climate was the main driving force behind poorer inflation, driving Eurozone inflation down by 0.2% in March. This was mostly driven by poor trading price index data which saw its lowest figures since 2010, signalling a slowdown in the countries key export markets.
The news regarding the Eurozone CPI will be welcomed heavily by Bundesbank who are heavily opposed of further QE. Bundesbank’s President Jens Weidmann has shown public concern regarding the impact of negative interests on savers.
The positive data from Germany and the Eurozone as a whole should strengthen his view towards dampening QE at a time when individuals need to save. If the ECB decide to act on Weidmann’s comments in the near future, higher interest rates will be welcomed by savers at a time when the EU need to demonstrate that they can stimulate growth without the need for QE, therefore boosting the value of the currency.
Euro consumer price index – as it happens
This morning figures for the latest Euro CPI were released, data came in as expected and showed positive improvements on last year’s figures. If this trend continues we can expect QE to slow and interest rates to improve. This will no doubt signal a stronger Euro in the future despite economic uncertainty over the UK’s involvement within the EU.
The data released this morning has weakened GBP, which currently sits at 1.2629 at the time of writing and comes at a time when little economic data is due for the UK for the rest of the week.
What next for GBP ahead of the Referendum?
Recent polls showed a sharp decline in the number of ‘In’ votes for the EU referendum this month. Reuters reported a 5% decline in the number of potential ‘In’ votes from the month of February, tipping it below the 50% mark. Economic uncertainty accompanied by positive EU economic data will continue the downward trend of Sterling, with concerns that rates may dip below 1.20, trading levels not seen since March 2014.