Pound Euro Exchange Rate Rises, UK Inflation Jumps as Shoppers Returned to High Streets in December

GBP/EUR Exchange Rate Edges Higher Ahead of BoE Speech

The Pound to Euro exchange rate rose by 0.4% today, with the pairing currently fluctuating around €1.12.

Sterling rose today after today’s publication of the latest UK inflation data jumped in December, with shoppers returning to the high street last month.

Today saw the release of the latest Consumer Price Index for December, which beat forecasts and rose by 0.6% year-on-year.

Robert Alster, CEO at the wealth management company, Close Brothers Asset Management, commented:

‘With Government debt soaring and individual purse strings tightening, Britain is extremely vulnerable to a rise in inflation in the year ahead. Short-term fluctuations caused by Brexit disruption and exchange rate shifts may not yet concern the Bank, but all eyes will be on when and how wages recover from Covid.’

GBP investors are awaiting today’s speech from the Bank of England’s Governor Andrew Bailey.

Any downbeat forecasts for the British economy would drag down the GBP/EUR exchange rate.

Euro Falls as Eurozone Heads for Double-Dip Recession

The Euro fell today as Europe’s lockdowns are fuelling fears of a double-dip recession in the Eurozone.

Katharina Utermohl, a senior European economist at Allianz, speaking to the Financial Times, commented:

‘We expect the Eurozone economy to kick off 2021 with a double-dip recession, with a second consecutive quarterly GDP contraction, in the first quarter, all but certain following the prolongation and further tightening of Covid-19 restrictions in these weeks.’

In Eurozone economic data, today saw the release of the final Consumer Price Index for December, which confirmed forecasts and rose by 0.3% month-on-month.

However, with lockdowns and rising Coivd-19 infections throughout the Eurozone, EUR traders are becoming increasingly jittery about the outlook for the economy.

Added to this, Italy’s political crisis has dampened confidence in the single currency, wit Italy’s Prime Minister, Giuseppe Conte, winning back the upper house of Parliament only by a narrow margin.

Political analyst, Wolfango Piccoli of Teneo, said of Conte:

‘[He is now in] an extremely precarious governing arrangement that would risk collapse at any divisive vote in the coming months.’

Pound to Euro Outlook: Could a Dovish ECB Drag Down the Single Currency?

Euro traders will be awaiting tomorrow’s interest rate decision from the European Central Bank (ECB).

Although the ECB is expected to hold rates at 0%, the increasingly dim outlook for the Eurozone’s economy could result in dovish policy going forward.

As a result, we could see the single currency continue to fall against Sterling.

Tomorrow will also see the release of January’s flash Eurozone Consumer Confidence report.

If this paints a bleak outlook for consumer morale, then we will see the Euro suffer.

The GBP/EUR exchange rate will also continue to be driven by the UK’s Covid-19 situation.

Any signs that Downing Street’s Covid-19 vaccine rollout is proving effective would be GBP-positive.

David Moore

Contact David Moore