Euro Pound Sterling (EUR/GBP) Exchange Rate Falls as German Import Prices Slump
The Euro Pound Sterling (EUR/GBP) exchange rate slumped on Wednesday, leaving the pairing trading at around £0.8544.
On Wednesday, the Euro slumped as data revealed import prices in the bloc’s largest economy plummeted at the fastest pace in two years.
German import prices fell by an annual rate of -3.5%, the largest fall since July 2016 when prices slipped by -4.1%.
However, further data revealed that French consumer confidence jumped to its highest level since the start of Emmanuel Macron’s presidency.
A year ago, consumer confidence plummeted amid weekly ‘yellow vest’ protests, and Macron’s measures of €10 billion in tax relief gave the bloc’s second-largest economy a boost.
This likely limited losses in EUR.
The country’s resilience meant the labour market remained strong, despite unemployment rising slightly to 8.6% during Q3. The economy able to create new jobs despite a slower global economic outlook.
In a research note, HSBC economist, Olivier Vigna wrote:
‘What a difference a year makes. With March 2020 local elections approaching, we continue to anticipate a contrast between economic figures, which underline France’s recent economic resilience, and social/political issues, where tensions pose downside risks to the outlook.’
Sterling (GBP) Rises as Investors Bet on a Conservative Election Win
The Pound rose against the single currency on Wednesday despite a slight upswing of election pessimism thanks to this week’s opinion polls.
A poll on Tuesday showed the Conservative’s lead of 18 points ahead of opposition parties slumped to just 11 points in a week.
This followed Monday’s poll from ICM which showed the Labour party squeezed Boris Johnson’s Tory party lead to seven from 10.
However, losses were limited as investors believed current Prime Minister Boris Johnson would remain in power.
Commenting on this, Lauri Hälikkä, fixed income and FX strategist at SEB noted:
‘The Pound has strengthened as a reassuring Tory majority would mean that the risk of hard Brexit is small while avoiding political lock-ups in Parliament and getting a growth-oriented economic policy.
‘A Labour victory would certainly give a softer Brexit but also very radical socialist policies, which few believe would be good for the Pound.’
Euro Pound Outlook: Will Weak German Inflation Weigh on EUR?
Looking ahead to Thursday, the Euro (EUR) could extend its losses against the Pound (GBP) following the release of Germany’s inflation rate.
If November’s flash inflation data slumps further than expected, the single currency could be left under pressure.
Meanwhile, Sterling is likely to rise if reports suggest the Conservative Party is likely to win the December general election.
If further opinion polls show Boris Johnson’s party has widened its lead against Labour, the Euro Pound (EUR/GBP) exchange rate will slump.
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TAGS: Euro Pound Forecasts