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Further Euro Volatility Forecast on Latest Eurozone Inflation Data

Last week’s high: €1.1380

Last week’s low: €1.1277

Underwhelming Eurozone Data Maintains Dovish ECB Policy Outlook

A weaker-than-expected raft of Eurozone manufacturing and services PMIs put some pressure on the Euro.

Although the data still pointed towards another solid month of sector expansion investors were deterred by the thought that the domestic economy is losing some of its momentum.

A surprise uptick in the UK unemployment rate, meanwhile, saw the GBP/EUR exchange rate trending lower in spite of the softening of the Euro.

Markets largely greeted the European Central Bank’s (ECB) January meeting minutes, which showed fresh signs of a growing divide amongst policymakers.

However, as the ECB still looks set to maintain its dovish policy bias for some time yet to come the Euro struggled to extend its resultant gains for long.

Confirmation that the Eurozone consumer price index fell back from 1.4% to 1.3% on the year in January left EUR exchange rates on a weaker footing ahead of the weekend.

With inflationary pressure still failing to pick up as the ECB would like the prospect of any imminent return to hawkishness looks decidedly limited.

Euro Outlook: Recovery in February’s Eurozone Inflation Rate to Offer Rallying Point

Confidence in the Euro could pick back in this week, however, if February’s provisional consumer price index data proves positive.

Any signs that inflation accelerated after January’s dip would give EUR exchange rates a solid rallying point.

Even so, until the ECB can see a persistent pattern of rising inflation the odds of any shift to a hawkish policy stance are likely to remain limited.

On the other hand, a fresh softening of inflationary pressure would give investors greater incentive to sell out of the single currency, to the benefit of the GBP/EUR exchange rate.

With the German unemployment rate forecast to have held steady on the month in January, though, the downside potential of the Euro should be somewhat muted.

Thursday’s UK consumer credit data could provoke some volatility for the Pound, meanwhile, having the potential to alter the odds of a May interest rate hike from the Bank of England (BoE).

Key Events

27th February

13:00   German Consumer Price Index

28th February

00:01   UK GfK Consumer Confidence Index

08:55   German Unemployment Rate

10:00   Eurozone Consumer Price Index

1st March

09:30   UK Net Consumer Credit


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To keep up to date with the Euro, visit the Euro blog in our Currency News section.

David Bayliss

Currency Dealer

01442 892 067

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