Pound euro exchange rate: GBP/EUR improves as Eurozone inflation hits a 17-month low

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Today’s flash Eurozone’s year-on-year core inflation figures for July fell below forecast from 1.1 percent to 0.9 percent.  The Eurozone’s flash quarterly growth figures for the second quarter, meanwhile, confirmed consensus and halved from 0.4 percent to 0.2 percent as the region continues to suffer from a slump in the manufacturing sector. Euro traders have become increasingly jittery as today’s data will strengthen expectations that the European Central Bank (ECB) will go ahead with stimulus measures in September. 

The ECB also said last week it would be “determined to act” if inflation continued to stay below the bank’s target of 2 percent across the bloc.  

Sterling, meanwhile, benefited from this morning’s publication of the GfK Consumer Confidence Index reading for July, which beat forecasts and rose from -13 to -11.

Joe Staton, a GfK Client Strategy Director said: “Pre-Brexit consumers are marginally more bullish this month with improvements in levels of confidence across most measures.”

“[W]e can [also] report a boost in attitudes to our personal financial situation in the face of low interest rates and day-to-day inflation, a buoyant labour market and growth in real wages.”

However, the pound’s gains today are likely to be short-lived as Prime Minister Boris Johnson has taken a more hard-line and confrontational stance with the EU over Brexit. 

Mr Johnson said yesterday that the EU should compromise with the UK and remove the Irish backstop from the withdrawal agreement, adding that a deal was now “very much up to our friends and partners across the Channel”. 

He also added: “They know that three times the House of Commons has thrown out that backstop, there’s no way that we can get it through… If they can’t compromise… then clearly we have to get ready for a no-deal exit.”

Pound traders are becoming increasingly jittery as the deadlock between the UK and the EU is preventing any constructive negotiations, further heightening the likelihood of a chaotic exit on October 31. 

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