Pound Euro Exchange Rate Strengthens as UK Inflation Soars

Pound Euro Exchange Rate Climbs on Jump in UK Inflation

The Pound Euro (GBP/EUR) exchange rate has gained some ground today following the UK’s impressive CPI figures this morning.

Currently, the Pound (GBP) is trading at €1.16500, up from a low of €1.15981 yesterday, despite the UK’s delay to ending lockdown and continued tension over the Northern Ireland protocol.

Pound (GBP) Climbs on UK Inflation Figures

The Pound has strengthened in today’s session following the UK CPI release earlier this morning.

The figures showed that inflation soared to 2.1%, its highest rate since July 2019, beating market expectations of a 1.8% increase. The jump in prices comes as the UK economy bounces back from the pandemic, with most lockdown restrictions now lifted.

However, the upside in Sterling could be limited by ongoing coronavirus and Brexit news.

There are worries that the UK’s delay to fully removing restrictions could slow the country’s economic recovery, while the decision also dampens hopes that the pandemic may almost be over.

Rising tensions over the Northern Ireland protocol also drag on the Pound, with the EU and the UK still stuck in a deadlock over checks on goods in the Irish Sea.

Euro (EUR) Dips ahead of Federal Reserve Decision

Meanwhile, the Euro (EUR) is on the defensive against the Pound (GBP) today, after wage growth figures printed below expectations.

Year-on-year wage growth in the Eurozone slowed in the first quarter of 2021 from 3.5% to 2.2%, less than half of the forecast 4.6% growth. The deceleration was likely due to the third wave of coronavirus in Europe earlier this year, which led to new restrictions being implemented in some European countries.

The figures put some downward pressure on the single currency, seeing it relinquish yesterday’s gains from the Stoxx 600 eight-day winning streak in the European stock markets.

EUR exchange rates are also likely weighed down by the impending policy announcement from the US Federal Reserve. Any suggestions of a more hawkish stance from the Fed could boost the US Dollar (USD), which may see the Euro suffer from its negative correlation to the ‘Greenback’.

Pound Euro Exchange Rate Forecast: Could US Taper Talk Dent the Euro?

The Fed’s interest rate decision and economic projections are in focus today, with any positive news for the US Dollar likely to put pressure on the Euro.

While the Fed is expected to keep its interest rate and bond-buying policies unchanged, it is likely that the central bank will signal a willingness to start discussing plans for tapering. Such news would likely boost USD and dent EUR, which could cause GBP/EUR exchange rates to climb.

However, the Euro could regain some ground against the Pound tomorrow, as the Eurozone’s final inflation rate figures for May are forecast to confirm a 2% jump in inflation. If the dispute over the Northern Ireland protocol escalates, this could also negatively impact GBP/EUR rates.

Samuel Birnie

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