The pound to euro exchange rate has made minor gains with sterling moving against the majority of major currencies at the time of writing this post. UK data yesterday showed slightly better than expected employment and average earnings figures yesterday along with inflation being shown to have crept up above 2% in figures released this morning.
Bank of England: Low GBP value causes UK inflation worry
Mark Carney (Governor of the Bank of England) had to explain via a letter to the Government why inflation has shifted above the 2% target. There is every chance that with the decreasing value of the pound inflation may continue to rise further as the cost of goods and services increase accordingly.
This puts the Bank of England in a tricky situation as they have an economy showing negative growth (as per the GDP figures released on Friday), the potential of a ‘no deal’ Brexit is looming over the head of the UK and along with all of this higher inflation makes it harder for them to attack these economic situations.
Some analysts are now speculating that we will see an interest rate cut for the UK by the end of the year and for those who are not aware an interest rate cut can be seen as negative, this may weaken the pound to euro exchange rate as it could make it less attractive to investors.
European data weak: How does this affect Pound to Euro exchange rates?
Germany’s ZEW index released earlier in the week showed that general investor and business confidence in Germany is exceptionally low, and with Germany being the biggest economy within the Eurozone this is bad news for the euro, however euro exchange rates are holding ground against the Pound due to the various issues discussed earlier in the post.
It seems like confidence is low over the whole Eurozone and there are many of the member economies seriously struggling, not to mention the political uncertainty that is hanging over countries such as Italy who are looking for another general election soon.
Needless to say it seems like Brexit will cast a shadow over all these problems in the investors eyes and should we see any positive Brexit progress there could be a spike in the value of sterling, should we head closer to ‘no deal’ then despite the European problems the pound may continue to struggle to make any gains of note.
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