The most recent inflation report for the UK showed the lowest level since March 2017, potentially calling into question future UK interest rate hikes. The Euro strengthened against Sterling yesterday as a result of this. This Euro report looks into the ways inflation can affect a currency. The table below shows the difference in Euros you could have achieved when buying £200,000.00 during the high and low points of the past month.

Currency Pair% ChangeDifference on £200,000
GBPEUR2%€4,630 EUR
European data to influence the value of the Euro There are a few key data releases to look out for this week if you are involved with a euro currency transfer. Wednesday at midday, Germany are set to release their Harmonized Index of Consumer Prices which measures price stability. The number is set to fall slightly to 2% which could devalue the euro slightly however I expect investors will want to wait for Friday’s unemployment rate and Consumer Price Index numbers. For many years it’s been heavily publicised that European unemployment is high but on Friday we are expecting to see unemployment fall from 8.2% from 8.3% which is good news for euro sellers. The consumer Price Index numbers are set to remain at 2.1% and if this materialises I expect the euro will strengthen as inflation is remaining above the ECBs target even though they are tapering the QE program and that it’s coming to an end at the turn of the year. If I were selling euros short term I would hold off until Friday.

Eurozone Inflation slowed in March, but lower UK Inflation protects Euro losses

The Euro performed well throughout yesterday against the Pound, despite a report released yesterday showing that Eurozone Inflation slowed from 1.4% to 1.3% in March, year on year. The main reason for these Euro gains was predominantly due to Sterling weakness, as UK Inflation fell to its lowest level since March 2017, and had added uncertainty amongst investors as to whether UK Interest Rates are still expected to rise in May. Although both sets of Inflation figures were released worse than previous time frames, the chances of this affecting the European Central Bank’s stance on monetary policy moving forward is far less likely than the chances of the Bank of England’s changing.

The ECB have made no secret of their dovish stance to reducing their bond buying programme later this year, however the Bank of England have given some more significant hints to raising interest rates in the very near future.

This provided our clients holding Euros with an excellent opportunity to buy Sterling, as GBP/EUR rates fell by around a cent over the course of the day, making an additional £1,500 on a €200,000 transfer if timed correctly.

IMF Meeting on Friday – will Italy take centre stage?

On Friday and Saturday International Monetary Fund will be meeting in Washington and will gather finance ministers and central bankers from 189 member countries, and could have the capability of moving Euro exchange rates.

This is particularly key for the Euro as the IMF were heavily involved in providing bailout loans to Italy in recent years, and given the current political situation in Italy with Euro sceptic parties currently in coalition talks, this could lead to uncertainty around the loans being repaid.

Italy’s President Sergio Mattarella has said that a deal between the centre-right and anti-establishment 5 Star Movement must agree to a coalition deal by Friday, after the previous two rounds of talks failed. It will be interesting to see if the IMF make reference to this during the meetings, and whether this has the potential to put Italy back in the spotlight once again.

For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353 or email me here.

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Exchange rates on this page are interbank rates and indicate where the market is trading to show the performance of a currency pair. They are not indicative of the rates which we offer. The information on this web site is provided free of charge for information purposes only. It does not constitute advice to any person on any matter. Foreign Currency Direct plc. ("FCD") makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.