Pound to Euro (GBP/EUR) Exchange Rate Steady as UK Inflation Data Shows Slow Return of Economic Activity

GBP/EUR Exchange Rate Rangebound Despite Growing Concerns over UK Unemployment

The Pound to Euro (GBP/EUR) exchange rate stabilised this morning, with the pairing currently trading around €1.08.

Sterling held steady today following the release of the UK Consumer Price index for August, which unexpectedly eased from 1% to 0.2%. As a result, Pound traders have reacted positively to a sign of activity in Britain’s struggling economy.

Neil Birrell, chief investment officer at Premier Miton, commented on the report:

‘The inflation data in the UK surprised on the upside. The core year-on-year CPI was up 0.9% against expectations of 0.5%. Rising inflation has been much discussed as the inevitable consequence of all the stimulus being injected into the economy. Policymakers won’t be worried about this number, they are more likely to be pleased there is activity in the economy.’

Meanwhile, concerns over the UK’s unemployment situation continue to grow following reports that both Blackpool and Hull have the highest rates of joblessness in the UK.

This follows yesterday’s UK ILO Unemployment Rate report for July, which showed that employment had jumped from 3.9% to 4.1%.

Consequently, GBP investors are becoming worried that joblessness in the months ahead could severely impact Britain’s economic recovery.

However, Brexit developments are holding back Sterling. The controversial passing on the Brexit Internal Market Bill has exacerbated fears of a no-deal on December 31st.

Euro (EUR) Steady as Concerns over Europe’s Covid-19 Situation Grow

The Euro (EUR) stabilised against the Pound (GBP) today after yesterday saw the Eurozone’s Industrial Production gauge show signs of recovery for the bloc’s economy.

Daniela Ordonez, European economist at Oxford Economics, however, is concerned in Europe’s health situation which has ‘led to lower mobility’ and ‘represents the main risk to the near-term [economic] outlook’.

Meanwhile, EUR investors will be monitoring Europe’s coronavirus situation. Any further signs that Covid-19 infections are rising would weaken the single currency.

In Eurozone economic news, today will see the release of July’s Trade Balance report. This is expected to fall from 17.1 billion to 9.3 billion in seasonally-adjusted terms.

Today will also see a speech from the European Central Bank’s Executive Board member Philip Lane. Any dovishness about the Eurozone’s economy would prove EUR-negative.

GBP/EUR Forecast: Could a Dovish Bank of England Drag Down the Pound?

Pound (GBP) investors will be awaiting tomorrow’s interest rate decision from the Bank of England (BoE). The bank will likely hold interest rates at 0.1%.

However, any dovishness from the BoE’s Monetary Policy Committee would drag down the GBP/EUR exchange rate.

Euro (EUR) traders will be awaiting tomorrow’s Eurozone inflation data. Any signs of an uptick in the bloc’s economic activity would prove EUR-positive.

Tomorrow will also see a speech from the ECB’s Vice President, Luis De Guindos. An encouraging outlook for the Eurozone’s economic performance in the months ahead would boost the single currency.

The GBP/EUR exchange rate will be driven by Brexit developments this week. If relations to the UK and the EU continue to sour, then Sterling will suffer.

David Moore

Contact David Moore