EUR Transfers: Euro Exchange Rate Gains as Pound Sterling Under Pressure

The euro continues on its upward trajectory despite some poor data out of the euro zone yesterday as the pressure on the pound mounts following some poor economic data last week and an ever growing expectation that the UK faces the loss of its prized AAA credit rating when this comes up for review later on this month.



The British Retail Consortium (BRC) reported yesterday that in December, UK shop price inflation remained unchanged at a 1.5% year-on-year pace with food inflation falling to 4.1% from 4.6% in November and non-food prices broadly flat after falling 0.3% in November.

Helen Dickinson, British Retail Consortium Director General, said: "Food inflation fell noticeably in December. Past rises in commodity prices are still trickling through the supply chain and wet weather's hitting more crops. But most significantly, global commodity costs have eased in recent months which are helping to reduce food inflation for consumers. Barring any new shocks in the supply chain, I would expect food inflation to stabilise at this sort of level in the short term and we may see it starting to settle to lower levels in the second half of 2013.”

In the euro zone, data showed that exports in Germany fell more than expected, a drop of 3.4% compared to consensus expectations of a 0.5% downturn. This after October’s surprise 0.2% increase. Germany’s central bank, the Bundesbank noted last month that weaker demand from the euro zone was hurting the German economy.

The Economy Minister Philipp Rösler said yesterday that the German economy grew by 0.75% in 2012.

Meanwhile, euro zone unemployment hit a new record high of 11.8% in November, according to official figures released yesterday with more than 26m people now unemployed across the EU ( a total of 18.8m in the euro zone).

Spain recorded the highest unemployment rate, at 26.6% with Greece in second place at 20% according to Eurostat, the official European statistics agency. The lowest unemployment rates were recorded in Austria (4.5%), Luxembourg (5.1%), Germany (5.4%) and the Netherlands (5.6%).

The only bright spot yesterday was the news that Ireland swept past a key milestone on its journey towards rehabilitation with international lenders yesterday when its first mainstream debt offering since the 2010 bailout was enthusiastically taken up. The €2.5 billion syndicated fundraising was three times over-subscribed. The favourable response comes a little over two years after Dublin was forced to accept a €67.5 billion rescue from the European Union and International Monetary Fund to enable it to keep paying its bills.



The market’s attention is swiftly turning to tomorrow’s policy decisions from the Bank of England and European Central Bank.