The GBPEUR exchange rate was trading at the July highs after the release of German unemployment and inflation data. The pair is at the highest level in three months despite a better-than-expected German unemployment number. Inflation was seen as being stronger than forecast for Europe’s largest economy.
The GBP to EUR trades at 1.1758 and also saw the release of mortgage approvals from the UK, which ultimately followed the weaker housing prices this week.
German inflation highest since 2008
German inflation accelerated at a faster-than-expected 3.8% in July, according to early data. The reading marks the first time that prices in the economy have breached 3% since 2008.
The last time we saw inflation in Germany higher was December 1993 with a peak of 4.3%.
The official statistics agency Destatis blamed the inflation on higher energy prices and the recalibrating of a six-month sales tax cut in 2020, which is now finally showing up in the data. The VAT cut was one of the measures brought in by the government to ease the pressure from the virus shutdowns.
The European Central Bank has followed other central banks in saying that inflation will be transitory, however, soaring German inflation will see further debate about when the ECB should begin removing some of its stimulus measures.
ING bank analysts have said there is more to come:
“Higher producer prices on the back of supply chain disruptions, higher commodity prices and the gradual reopening of the economy are all impacting consumer prices. Together with the reversal of the German VAT rate, headline inflation could even exceed 4% towards the end of the year.”
German unemployment rate drops further in July
Germany’s unemployment rate surprisingly dropped to 5.7% in July, according to the federal labour agency on Thursday.
Seasonally adjusted figures highlighted that the number of unemployed had dropped by a huge 91,000, compared to analysts’ forecasts of 28,000, with the unemployment rate coming down 5.9% in June.
“The situation in the jobs market is continuing to improve. Despite the beginning of the summer holidays, there has been another significant decrease in joblessness and underemployment,” said Detlef Scheele, head of the federal labour agency.
“The employment figures continue to grow, and businesses are now looking for more employees,” he added.
The final data point on the day was mortgage approvals in the UK, which came in lower at 81.3k versus expectations for 86.1k. That was to be expected after yesterday saw house prices in the UK falling to a year-on-year increase of 10.5% after the full tax cut for buyers expired at the end of June.
The GBP versus the EUR rate has not reacted to the German employment data and the higher inflation has not seen them heighten expectations for a rate hike. The pound is still seeing support from the reopening of the economy and lower virus cases and the pair still has the yearly highs at 1.18 in its sights.