GBP/EUR Exchange Rate Sinks Despite Further Easing of UK Lockdown Measures
The Pound Euro exchange rate dipped today after the UK’s inflation more than doubled in April, looking set to rise above the Bank of England’s (BoE) target of 2%. The pairing is currently trading around €1.15.
Sterling failed to rise today despite the latest UK consumer price index figure rising by 0.6% in April. The lifting of the UK’s lockdown restrictions are also expected to send inflation above the BoE’s targets in the coming months.
Ruth Gregroy, the senior UK economist at Capital Economics, said that April’s inflation could be temporary. She explains:
‘There were pockets of inflation in those sectors that are reopening, with clothing inflation bouncing back from -3.5% to +0.5%, as retailers continued to reverse the aggressive discounting during lockdowns, and furniture inflation rising from 4.5% to 5.8%. And depending on the strength of pent-up demand for hospitality, there will probably be further surges in these categories over the coming months.
‘But in April, these movements were partially offset by some of the pandemic-induced surges in inflation continuing to fade. Data processing equipment fell further from 5.9% in March to 0.2%. Meanwhile, second-hand car inflation dropped from 1.2% to 0.2%.’
The outlook for the UK economy, however, continues to improve now that the Government has said that it will stick to its lockdown easing roadmap.
UK markets now expect further easing of restrictions to go ahead in June, despite concerns over the India variant of Covid-19.
Euro (EUR) Exchange Rate Edges Higher as Hopes Grow for Eurozone’s Economy
The Euro exchange rate rose today as the Eurozone’s economy is showing signs of bouncing back from its double-dip recession.
Angel Talavera, economist at Oxford Economics, explains:
‘The recovery has already started in the eurozone, based on several high frequency indicators.’
Today saw the release of the latest Eurozone consumer price index for April. The core figure fell slightly below forecasts from 0.6% to 0.5%.
Analysts at Reuters commented on the data:
‘The European Central Bank wants to see inflation even closer to 2% over the medium term but has warned that the faster growth is mainly due to comparison effects with very low energy prices a year earlier.
‘Prices of energy, such as oil and gas, rose 10.4 year-on-year in April, adding 0.96 percentage point to the final inflation figure. On the other hand, costs of unprocessed food, another volatile component, fell 0.3% year-on-year in April.’
Hopes continue to grow for the Eurozone’s economy as the EU catches up with Covid-19 vaccinations. As a result of this growing economic confidence, we could see the EUR/GBP exchange rate edge higher throughout today’s session.
Pound Euro Exchange Rate Forecast: Could a Bullish BoE Boost Sterling?
Euro investors will be looking ahead to tomorrow’s speech from the European Central Bank’s (ECB) President Christine Lagarde.
Any upbeat comments about the outlook for the Eurozone’s economy for 2021 would be EUR-positive.
Tomorrow will also see the release of the latest Eurozone construction output data for March. If this shows a marked improvement in the Eurozone’s construction sector, then the EUR/GBP exchange rate could head higher.
Pound investors will monitor tomorrow’s speech from the Bank of England’s (BoE) Deputy Governor Sir Jon Cunliffe.
The Pound Euro exchange rate could begin to claw back some of its losses. If UK’s economic growth forecasts are upgraded by the Bank of England, then the Sterling exchange rate would rise.