Euro languishes at one-year lows against the British Pound despite positive German data

• EUR/GBP holds losses around 0.8540, despite a sharp increase in German Industrial Production.
• Factory output rose 0.9% in Germany in May, beyond the 0.2% expected by the market.
• The Euro has dropped more than 1% in about a week, as markets pare back ECB tightening hopes.

The Euro (EUR) has failed to draw support from the upbeat German industrial figures released earlier on Tuesday and consolidates losses at one-year lows against the British Pound (GBP). The EUR/GBP pair trades at 0.8540, its lowest price since July last year, after falling from levels above 0.8600 last week.

Data released by the German statistics office on Tuesday showed that  Industrial Production increased 0.9% in May, more than twice April’s 0.4% rise, and well above the 0.2% increase forecasted by the market analysts.

In the UK, the Lloyds House Price Index, released at the same time, has shown a 0.2% increase in June, following a 0.1% contraction in May, also beating expectations of a 0.1% rise. Year-over-year, housing prices accelerated to a 0.6% growth, from the 0.5% seen in May, according to the Lloyds report.

The Euro loses support from ECB’s monetary policy

The pair has depreciated more than 1% since last week, as soft German consumer price data suggested that inflationary pressures from the Middle East war might have already peaked, easing pressure on the European Central Bank (ECB) to hike interest rates in the near term.

ECB President Christine Lagarde refused to commit to any particular rate path at a central bankers’ summit in Sintra last week. Her comments pointing to levelled risks for growth and inflation and denying second-round effects on inflation, however, suggest that the bank is likely to stand pat in July after June's rate hike.

This has deprived the Euro of the favourable monetary policy divergence between the ECB and the Bank of England (BoE), which is not expected to change its monetary policy in the coming months.