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Eurozone Inflation Worries Weigh Down Euro Exchange Rates

Last week’s high: €1.1300

Last week’s low: €1.1215

Euro Pushed Higher on Solid Fourth Quarter Eurozone GDP

The fourth quarter Eurozone gross domestic product data helped to boost the Euro on Wednesday, confirming that the currency union had ended 2017 on a solid note.

While there was a slight moderation in German growth on the quarter this was not enough to diminish the bullish impact of the data.

With investors hopeful that the Eurozone economy will have maintained this solid momentum in the first quarter of 2018 there seemed little reason to sell out of the Euro.

However, as December’s Eurozone trade balance report proved rather mixed in nature the GBP/EUR exchange rate soon found a rallying point.

Reports that EU negotiators will drop the so-called ‘punishment clause’ from a draft proposal for the Brexit transition agreement also helped to bolster the Pound.

Ahead of the weekend the Euro lost further support, meanwhile, thanks to signs of rising US inflation and a more bullish US Dollar.

As inflationary pressure within the currency union remains decidedly lacklustre, with Spain showing a sharp contraction in consumer prices in January, EUR exchange rates naturally lost their traction.

Given that the European Central Bank (ECB) looks set to leave monetary policy on hold for the foreseeable future the upside potential of the Euro remains rather limited.

Euro Outlook: Solid Raft of Eurozone PMIs Could Encourage ECB Confidence

The release of various Eurozone sentiment surveys will provoke volatility for the GBP/EUR exchange rate over the coming days.

If economic and business confidence indicators show an improvement on the month the mood towards the single currency should improve.

Focus will also fall on the latest raft of Eurozone manufacturing and services PMIs, which markets hope will offer evidence of continued economic strength.

A solid set of figures would bode well for the first quarter gross domestic product, something that could give ECB policymakers food for thought.

Unless UK wage growth shows signs of picking up in Wednesday’s average weekly earnings figures the GBP/EUR exchange rate may struggle to make any significant gains.

Persistently weak wage growth could dissuade Bank of England (BoE) policymakers from raising interest rates again in the near future, to the disappointment of markets and the detriment of the Pound.

Key Events

20th February

10:00   German ZEW Economic Sentiment Survey

21st February

08:30   German Manufacturing PMI

08:30   German Services PMI

09:30   UK Average Weekly Earnings

22nd February

09:00   German IFO Business Sentiment Survey

09:30   UK Gross Domestic Product


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

Thomas Taylor 

01442 892 074

Currency Dealer

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