Pound to Euro Rate Rises After Worsening German Inflation

GBPEUR Holds Steady at 1.1650 Before Bailey Speech

The pound to euro exchange rate was higher in early trading on Tuesday as traders await a set of data releases for the U.K. and Eurozone economies.

The GBPEUR pair was trading 0.14% higher at 1.1185 after Sterling was boosted by Monday’s data which showed an improving mortgage outlook

U.K. Mortgage Approvals Reach a 13-Year High

British home lenders saw mortgages at their highest in over 13 years in October. Mortgage approvals rose by 97.5k up from 92.1k in September, according to data from the Bank of England.

The figures show a housing market that is defying the economic gloom and a virus second wave, which should see unemployment rising again. Demand for UK housing is said to be fuelled by remote workers seeking larger properties, whilst an emergency tax cut for buyers will expire in March 2021.

Nationwide house prices were higher for the U.K. this morning with a reading of 6.5% versus a 5.5% projection, which underlines the buoyant housing market.

German Data Highlights a Worsening Deflationary Picture

German inflation data was released on Monday and the figure came in at -0.3% versus analyst expectations for a tick higher from -0.2% to -0.1%. The release highlights a worsening picture of deflation in the Eurozone’s largest economy. Traders will be aware that the latest lockdowns have played a part in this weaker figure, but it will raise alarm bells at the European Central Bank (ECB).

The ECB were vocal in September about their disapproval of euro’s strength this year and policymakers went as far as talking about currency intervention. It’s likely that this scenario would be a last resort but with another ECB interest rate meeting due this month then action is possible. The bank may seek to talk to lower the euro by increasing their current stimulus measures. This may also be the best opportunity to do so after the recent Europe-wide lockdowns and a vaccine on the horizon. Any action taken by the ECB could see a big move in the GBPEUR exchange rate.

The Eurozone will see a further set of important data released today with the German employment rate expected to move higher by 0.1% to 6.3%. This will be followed by inflation figures with core inflation in the European economies projected to stay at 0.2%.

Brexit talks are still ongoing and Michael Gove said Tuesday that they are still at a familiar stalemate with fishing and governance. Gove told reporters:

“The EU still wants to take the lion’s share of the fishing in our waters – that’s not fair. The EU still want us to be tied to their way of doing things.”

Time is running out for the two sides to agree a deal and have it approved by EU and U.K. politicians, alongside the EU27 countries and this will weigh on the pound against the euro.

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