GBP/EUR Exchange Rate Stable on Upbeat UK CPI Figures
The Pound to Euro (GBP/EUR) exchange rate is holding steady this morning as markets react to the UK’s latest inflation figures.
At the time of writing the GBP/EUR exchange rate is trading at around €1.2048, virtually unchanged from this morning’s opening rate.
Pound (GBP) Supported by Robust Inflation
The Pound (GBP) is holding its ground this morning, with the GBP/EUR exchange rate trading just below its recent highs in response to the UK’s consumer price index (CPI).
According to data published by the Office for National Statistics (ONS), UK inflation surged to a six-month high of 1.8% in January, rebounding from a three-year low of 1.3% and soaring past forecasts for a more modest rebound of 1.6%.
The uptick in inflation was attributed to higher fuel prices, as well as higher energy prices than the year previous after the introduction of the energy price cap.
A shock as #UK #consumer price #inflation spiked to 6-month high of 1.8% in January (37-month low of 1.3% in Dec). Rise was expected due to base effects as was sharp drop in Jan 2019 when Ofgem energy price cap came into effect. Also lifted by higher air fares & petrol prices
— Howard Archer (@HowardArcherUK) February 19, 2020
Mike Hardie, head of inflation at the ONS said:
‘The rise in inflation is largely the result of higher prices at the pump and airfares falling by less than a year ago. In addition, gas and electricity prices were unchanged this month, but fell this time last year due to the introduction of the energy price cap.’
The solid rebound in inflation is further evidence of the UK’s post-election bounce and is likely to ease pressure on the Bank of England (BoE) to cut interest rates in the near-term.
Euro (EUR) Muted amid Germany Concerns
At the same time, the Euro (EUR) is floundering this morning, in response to growing concerns over the state of the German economy.
Yesterday’s ZEW survey revealed a sharp drop in German economic sentiment this month, with the index tumbling from 26.7 to 8.7 amidst fears that Germany’s export focused economy will be hard hit by the coronavirus outbreak.
‘The feared negative effects of the coronavirus epidemic in China on world trade have been causing a considerable decline of the indicator of economic sentiment for Germany.
‘Expectations regarding the development of the export-intensive sectors of the economy have dropped particularly sharply.’
EUR investors are particularly worried about the potential for Germany to fall into a recession this year, and the impact this could have across the wider Eurozone.
GBP/EUR Exchange Rate Forecast: Rebound in UK Retail Sales to Boost Sterling Sentiment
Looking ahead, the glut of UK data continues on Thursday with the publication of the UK’s latest retail sales figures.
This may see the Pound to Euro (GBP/EUR) exchange rate strengthen tomorrow as economists forecast sales growth will have rebounded sharply in January as part of the much vaulted ‘Boris bounce’.
This will be the first increase in retail sales since July, and should help to lift Sterling as it boosts hopes that the UK economy will have returned to growth in the first quarter of 2020.
Meanwhile, for EUR investors the focus will be on the minutes from the European Central Bank’s (ECB) latest policy meeting.
These may keep the Euro under pressure if policymakers are shown to be largely dovish in their outlook for 2020.