GBP v EUR hits a 5-and-a-half month low

EU stagflation fears eased after better than expected Q3 GDP...



It's all about the Euro on the last day of the month and the headline reads that EU inflation has fallen to its lowest level in over 2-years. Now usually this would mean good news for the consumer and bad news for the currency. However, once again it's the core inflation picture that means more to this market and that remains sticky.

Inflation from Germany, France, Portugal and Spain all came in below forecast which has meant the Euro-Zone's headline inflation figure has substantially fallen from 4.3% to 2.9%. The core number did fall from 4.5% to 4.2%, but the drop is obviously marginal when compared to the large main inflation fall.

The ECB's target of 2% is therefore still quite far away and so high interest rates will have to remain until the core figure really starts to come down. This is why the € has strengthened, as cutting interest rates could be more than 6-months away at this point, which will keep the € 'steady' until such call. 

The Euro area economy did contract in Q3, marginally missing on estimates due to a slump in the German economy. However, overall this was still much better than most had anticipated, which has eased stagflation fears ahead of Q4. A good day for Euro sellers.


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