GBP/EUR Exchange Rate Muted in Spite of Strong Eurozone Inflation
The Pound Euro (GBP/EUR) exchange rate is trading in a narrow range this morning as the Eurozone’s latest inflation figures failed to provide a boost to the single currency.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1347, virtually unchanged from this morning’s opening levels.
Euro (EUR) Flat Despite Strong Rebound in Inflation
The Euro (EUR) is currently struggling for direction this morning, as the Eurozone’s consumer price index fails to cheer the single currency, in spite of printing at an eleven-month high.
According to data published by European statistics agency, Eurostat, inflation in the Eurozone rocketed to 0.9% in January, beating forecasts for a more modest rebound to 0.5% and bringing an end to five consecutive months of deflation.
The rebound in inflation was led by strong price growth in Germany and the Netherlands, and came in spite of a strong downturn in energy prices.
While EUR investors welcomed the return of inflation pressure in the Eurozone, it was not enough to aid a recovery in the Euro this morning, as the single currency’s negative correlation with the US Dollar (USD) sees it continue to struggle, with the prevailing risk-off mood further bolstering demand for the safe-haven ‘Greenback’.
Pound (GBP) Steady on Improving Business Outlook
At the same time, the Pound (GBP), is trading in a narrow range this morning, as the UK’s latest PMI release confirmed UK economic activity took a hit at the start of 2021.
January’s finalised PMI release saw growth in the UK’s private sector revised slightly higher from 40.6 to 41.2, but this was still well below the 50 marker which denotes the point of expansion.
However, while activity contracted last month, it appears that the outlook for businesses is growing increasingly positive, with this optimism mostly driven by hopes that the UK’s vaccine success will pave the way for a strong rebound later this year.
Tim Moore, Economics Director at IHS Markit, said:
‘While the UK economy is on course to contract sharply during the first quarter of 2021, businesses remain confident that pent up demand and an easing of pandemic restrictions will provide a springboard to recovery later this year.
‘Positive news on the UK vaccine rollout pushed up business optimism to its strongest since May 2014 and this improvement contrasted with a decline in confidence reported by service providers in the euro area during January.’
Pound Euro Exchange Rate Forecast: BoE in the Spotlight
Looking ahead, the main catalyst of movement in the Pound to Euro exchange rate through the second half of this week will undoubtedly be the Bank of England’s (BoE)’s first rate decision of 2021.
While no policy changes are expected from the BoE this month, GBP investors will be paying close attention to the bank’s forward guidance.
This could see the Pound move higher as the bank’s outlook is likely to be mostly positive in light of the UK’s success with its vaccination programme, with policymakers likely to further downplay the chances of the BoE slashing interest rates below zero.
In the meantime, the publication of the Eurozone’s latest retail sales figures will be in focus for EUR investors, with their release potentially sending the Euro lower if we see Germany’s collapse in sales growth mirrored throughout the bloc.