Pound continues to hit new 7-year highs, as Eurozone deflation deepens

It's the best time to exchange pounds for euros since December 21st 2007 today.

by David Pewes

The pound to euro exchange rate has reached 1.3664 this morning, a new 7-year high, sterling’s strongest since December 21st 2007. This is largely because the Eurozone continued to fall further into deflation in January, while a second estimate of German growth figures for Q4 failed to rise, disappointing some investors.

Sterling continues to climb versus the euro, because Eurozone inflation fell –0.6% in January compared to last year, according to official statistics body Eurostat today. This confirms that the price of goods and services in the currency bloc continues to fall, thereby risking outright deflation, widely associated with economic stagnation. Hence, the weak euro.

In addition, the pound has hit this new 7-year high versus the euro, because a second estimate of German economic growth, released today by Statistisches Bundesamt Deutschland, confirmed that Germany grew +0.7% in the last three months of 2014. This disappointed some investors, who’d hoped that Germany’s growth would be revised up. This has also weakened the euro today, to sterling’s advantage.