Pound Euro Exchange Rate Rebounds from Two-Week Low as Eurozone Inflation Slows

Pound Euro Exchange Rate Recoups Losses Following Eurozone CPI Release 

The Pound Euro (GBP/EUR) exchange rate is currently trading in a narrow range, with the pairing having rebounded from its initial losses, following the release of the Eurozone’s consumer price index. 

At the time of writing the Pound Euro exchange rate is trading at around €1.16516, virtually unchanged from this morning’s opening levels. 

Euro (EUR) Falters as Eurozone Slows back within the ECB’s Target Range 

The Euro (EUR) has relinquished its initial gains against the Pound (GBP) this morning, after the Eurozone’s latest CPI figures reported inflation slowed slightly in June

While inflation only slowed from 2% to 1.9% as expected, this still sees it drop back within the European Central Bank’s (ECB) target range. 

This may feed into the ECB’s stance that inflation is currently being boosted by transitory factors, and leave the bank content in leaving its ultra-loose monetary policy in place for some time yet. 

Neil Birrell, Premier Miton chief investment officer and manager of Premier Miton Diversified Growth Fund, comments: 

‘CPI in the Eurozone came in as expected for June; fairly muted, as inflation in other major economies is gathering pace. However, there is a dampening impact in Europe from statistical factors. 

There is no reason that inflation will not be a notable issue in Europe in the coming months, just as it is everywhere else, as the economy opens up and activity increases. The ECB will be keeping a close eye on it, along with all the other central banks.’ 

Pound (GBP) Dented by Downgraded GDP 

At the same time, the Pound’s (GBP) recovery this morning comes after the currency was initially undermined by the UK’s latest GDP release

According to data published by the Office for National Statistics (ONS) the UK economy shrank by 1.6% in the first quarter of 2021, with the final growth reading being revised down from a previous estimate of a more modest 1.5% contraction. 

Alastair George, chief investment strategist at Edison Group, comments: 

‘The data are a reminder of the damage lockdowns wreaked on the economy, even as the UK government provided extensive fiscal support.’ 

The underwhelming figure exerted some pressure on Sterling following their release at 07:00 BST, although the Pound appears to have largely rebounded from these initial losses at the time of writing. 

Pound Euro Exchange Rate Forecast: Rebound in German Retail Sales to Bolster the Euro? 

Looking ahead, the Pound Euro (GBP/EUR) exchange rate may come under pressure tomorrow, with the publication of Germany’s latest retail sales figures. 

Economists predict that sales growth will have rebounded sharply in May, with the current consensus estimates forecasting a surge from –5.5% to 5%, which if correct, could prove the Euro with a clear boost tomorrow morning. 

However, a speech by ECB President Christine Lagarde will also be watched closely by EUR investors, with any upside in the Euro potentially being limited by any dovish comments regarding monetary policy. 

Meanwhile, GBP investors will look to a speech by Bank of England (BoE) Governor Andrew Bailey for fresh impetus tomorrow. 

Expect the Pound to weaken if Bailey strikes a similarly dovish tone than that struck by policymakers following last week’s BoE rate decision.