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Pound Euro exchange rate: Weaker than expected inflation leaves GBP/EUR flat


The pound euro exchange rate was left flat today as UK inflation data from the Office for National Statistics showed consumer prices edging up at their slowest rate since December 2016. Sterling came under pressure when the UK Consumer Price Index (CPI) rose by 1.7 percent in August compared to 2.1 percent in July, the largest drop in annual inflation since late 2014. Consumer prices fell in 10 of the 12 regions, with the largest slumps seen in Northern Ireland and Wales. 

However, falling inflation and the fastest wage growth in 11 years provided British consumers with a pre-Brexit boost to their spending power. 

Commenting on this, Deloitte’s chief economist, Ian Stewart noted: “Sharply lower inflation is great news for the UK economy. Along with soaring earnings, low inflation boosts consumer spending power just when the economy needs it.

“Falling inflation gives the Bank of England more headroom to loosen monetary policy. Corporate investment and manufacturing are weakening, and consumers need to keep consuming to keep UK growth going – lower inflation will help them do just that.”

Meanwhile, inflation data from the Eurozone CPI for August remained at an annual rate of 1 percent, and the bloc’s core inflation rate posted at 0.9 percent, unchanged from July’s reading. 

European Central Bank (ECB) Vice President Luis De Guindos placed further pressure on the euro today when he stated that interest rates in the Eurozone will not rise provided the bloc’s inflation rate fails to meet the ECB’s target.

During an address given in Madrid, the central banker also added that economic risks remain tilted to the downside, leaving the euro flat.

Looking ahead to Thursday, the pound is likely to come under pressure ahead of the Bank of England’s (BoE) interest rate decision.

While the bank is expected to leave rates unchanged, the pound could slide if the meeting minutes take a dovish tone. 



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