Pound to Euro (GBP/EUR) Exchange Rate Steady as UK Economic Fears Hold Back Sterling

GBP/EUR Exchange Rate Rangebound as UK Inflation Rises in October

The Pound to Euro (GBP/EUR) exchange rate held steady this morning, with the pairing currently trading around €1.118.

Sterling held steady following today’s release of October’s UK Consumer Price Index data, which beat forecasts and rose from 0.5% to 0.7%.

However, several analysts and economists have predicted that present Covid-19 restrictions will drag down inflation in the months ahead.

Debapratim De, the senior economist at Deloitte, commented on today’s inflation data:

‘October’s inflation figures have come in slightly above expectations. Yet they reflect a disinflationary environment, given the current backdrop of weak wage growth, rising unemployment and abundant spare capacity.

‘Inflation is likely to remain subdued until the economy regains most of the lost activity due to the pandemic.’

Nevertheless, Brexit is a larger concern for the UK economy, with the accountancy firm KPMG said that the British economy would suffer considerably from the lack of a UK-EU trade deal.

Yael Selfin, chief economist at KPMG UK, said:

‘We’re hopefully out of the woods when it concerns Covid, but we must still remember the UK is entering another period where there is still going to be some sort of a shock.’

Consequently, GBP investors are remaining cautious as the UK is due to face several economic headwinds and uncertainties as the year draws to a close.

Euro (EUR) Steady as EUR Benefits from Covid-19 Vaccine Hopes

The Euro (EUR) held steady today after the single currency benefited from its negative correlation with the US Dollar (USD). The American currency fell owing to rising hopes of a Covid-19 vaccine.

However, following Poland’s and Hungary’s vetoing of the European Union’s coronavirus budget, EUR investors have become more cautious about the Eurozone’s economy going forward.

Rasmus Andresen, a former member of the European Parliament’s negotiation team, commented:

‘Hungary and Poland risk plunging the EU into a deep crisis. If the EU budget and the recovery package are blocked, the economic crisis in the EU will intensify and the Hungarian and Polish economies will suffer massively as a result.’

In Eurozone economic data, today saw the release of the inflation data for October, which confirmed forecasts and dipped by -0.3% year-on-year.

Analysts at Reuters commented on the report:

‘Eurozone annual inflation was negative for a third consecutive month in October, matching a four-year low, as energy prices were around 8% lower than a year earlier.’

With the Eurozone’s economic outlook largely uncertain, EUR traders are becoming increasingly jittery.

GBP/EUR Outlook: Could a Dovish ECB Drag Down the Single Currency?

Euro (EUR) investors will be awaiting tomorrow’s speeches from the European Central Bank’s (ECB) President Christine Lagarde.

Any further downbeat commentary about the Eurozone’s economy would drag down the EUR/GBP exchange rate.

Tomorrow will also see the EU leaders’ summit.

As a result, we could see the single currency suffer if there are further signs of crisis within the European Union.

There are no UK economic data releases tomorrow, with GBP investors instead awaiting Friday’s publication of British retail sales and consumer confidence for October.

Brexit developments will also continue to move the GBP/EUR exchange rate.

Consequently, we could see Sterling begin to fall on signs that UK-EU talks are failing to agree on a post-Brexit trade agreement.

David Moore

Contact David Moore