GBP EUR Lower After ECB Monetary Policy Minutes

GBP EUR Lower After ECB Monetary Policy Minutes

The GBP EUR exchange rate was lower by -0.23% on Thursday after the release of German economic data and minutes of the latest ECB monetary policy meeting. German consumer confidence was seen slowing, but traders are less sure of a December BoE rate hike.

The GBP EUR is trading at 1.1870 after the latest economic figures.

German consumers hit by latest virus surge

Consumer confidence was slower in Germany after the latest surge in infections.

That’s according to market researchers at the GfK institute on Thursday. The consumer sentiment index fell to -1.6 points, down from 1 in the previous month.

The latest reading is the lowest since June, and it may dampen retailer confidence for the Christmas shopping season.

GfK researcher Rolf Buerkl:

“There are the current restrictions, many people will now be afraid again to go shopping as they worry about getting infected. And as a lot of the Christmas markets have now been cancelled the buzz is now missing from the city centres which is bad news for high street shops.”

A rise in virus infections over the past few weeks could hit Germany’s recent driver of growth in the fourth quarter. Inflation is another problem for the German economy and Gfk added:

“On the other hand we are experiencing price hikes and rising inflation which are currently above 4%. And these two things together are really pinching the consumer sector at the moment.”

The survey was released before the final reading of GDP data which showed Germany grew 1.7% in the third quarter, slightly below initial forecasts.

European central bank to keep its policy options open

The European Central Bank will keep its policy options open beyond the December meeting as uncertainty over the path of inflation remains, policymakers said in October, according to the minutes of the meeting.

High inflation is still being tagged as temporary by the ECB, but the current “hump” in prices is expected to be more durable than initial projections. Policymakers fear that wages could continue to rise and raise price pressures.

“It was cautioned that the data available in December would not resolve all the uncertainties around the medium-term inflation outlook,” the accounts highlighted.

“It was seen as important that the Governing Council should keep sufficient optionality to allow for future monetary policy actions, including beyond its December meeting,” the ECB said.

The comments took a dovish tone as always and backed up recent calls by policymakers such as Jens Weidmann and Klaas Knot that the ECB should avoid an extensive commitment beyond December as inflation could change quickly.

The bank is widely expected to agree on reducing their 1.85 trillion euro pandemic emergency bond-buying program from March, but may consider increasing other purchases to pick up the slack.

The GBP to EUR is struggling to hold recent gains above 1.1900 and comments from the BoE have not clarified their interest rate stance.

Pound Sterling Forecast – Powered by Lumon