GBP/EUR advances a further 0.2 pct, EUR weakness seen as being widespread

The Pound to Euro exchange rate has advanced on Tuesday despite some positive news out of Germany.

Ishaq Siddiqi at ETX Capital says:

"Germany’s ZEW survey blew the doors off, smashing expectations, up 42 in August from 36.3 in July.

"The current conditions index rose to a whopping 18.3 in August from 10.6 in July – the ZEW attribute the big jump on the first signs of an end to the recession in come euro zone countries together with the robust domestic demand in Germany, the euro area’s power house. Euro zone industrial output data was slightly weaker than forecast, in at 0.7% in June versus expectations of 0.8% but still better than the 0.3% rise back in May and the report does little to sour hopes for the euro zone to push out of a recession when GDP figures for Q2 are printed tomorrow.

"Expectations are for euro zone GDP to come in at 0.1%, an encouraging move back into growth, well just about.

"That’s the problem here – euro zone’s growth prospects still appear bleak.

"Sure, its welcome that we have seen the recession ease, particularly for nations in periphery, but these countries have still lost at least 5 years of growth. Likely we are going to see euro zone GDP teeter in and out of meagre growth until the periphery’s on the path of self-sustaining growth."

British Pound fails to react to inflation data

The big news event here in the UK was the release of the latest monthly inflation data.

All eyes were on the release considering inflation is one of the 'knock-outs' that would allow the Bank of England to raise interest rates sooner rather than later.

Shaun Osborne at TD Securities says:

"CPI was exactly in line with consensus at 2.8% Y/Y, although core pressures were a little softer with core CPI at only 2.0% Y/Y (mkt 2.2%). The details didn’t contain anything particularly notable, but the gradual pull-back in inflationary pressures should help to give markets a little more confidence that the BoE’s forward guidance will last."

Momentum clearly remains with GBP at present and hence it will be hard for the EUR to regain the initiative.

However, the chance for revenge could present itself tomorrow in the form of the release of the minutes of July's MPC Meeting at the Bank of England.