GPB/EUR: Pound bounces higher on German inflation slump | City & Business | Finance

The GBP/EUR pairing advanced by over 0.3 per cent to achieve a high of €1.161, up from a low of €1.153.

Economists had forecast that the rate of inflation in Germany would come in at 0.4 per cent on the month in March, down from 0.6 per cent in February. However, the consumer price index printed at 0.2 per cent on the month.

The annual reading of 1.6 per cent was also lower than forecasts of 1.8 per cent and marked a significant slowdown from the previous month’s 2.2 per cent reading.

This was the first annual slowdown in nearly a year. Although higher food costs and climbing energy prices contributed to the overall increase, price rises in both areas slowed.

As Germany is the Eurozone’s largest economy, the dip could have a negative impact on the rate of inflation in the currency bloc as a whole.

The euro accordingly weakened across the board after the data was published, with EUR/GBP sliding to £0.860 and EUR/USD easing back to $1.072.

Earlier in the day the Eurozone’s economic, business, industrial and services confidence measures all came in below forecasts.

Economic confidence dipped from 108.0 to 107.9, the business climate indicator held at 0.82 instead of improving to 0.87, industrial confidence slipped from 1.3 to 1.2 and the services index dropped from 13.9 to 12.7.

Demand for the euro was also limited as a report from Reuters indicated that the European Central Bank (ECB) was concerned about the reaction to policy hints made earlier in the month.

The ECB’s last policy meeting led to speculation that the central bank could be planning to increase interest rates before the close of 2017, or at least start tapering its quantitative easing measures in preparation for raising interest rates early next year.

However, it seems the central bank is keen to backpedal on that outlook.

ECB sources said: “We wanted to communicate reduced tail risk but the market took it as a step to the exit. The message was way overinterpreted.”

UK data has been in short supply…

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