Euro Spikes after ECB Alters Inflation Target, US Dollar Bolstered by Surging Inflation

GBP/EUR Exchange Rate: Pound Climbs to Three-Month High as UK Inflation Impresses 

After mounting a convincing recovery towards the end of last week, the Pound Euro (GBP/EUR) exchange rate has been able to extend its upside this week, propelling the pairing to its best levels since early April. 

This upside in Sterling comes in response to the UK’s latest consumer price index, which printed at 2.5% in June, well ahead of forecasts that inflation would only accelerate as high as 2.2%. 

The surprisingly strong inflation figures were warmly received by GBP investors, who feel it may put more pressure on the Bank of England (BoE) to consider tightening its monetary policy. 

Looking ahead, the UK’s latest employment figures could provide another boost to the GBP/EUR exchange rate in the latter half of this week, as May’s figures are expected to report a sharp acceleration of wage growth. 

GBP/USD Exchange Rate: Sterling Fluctuates amidst Coronavirus Concerns 

The GBP/USD exchange rate rebounded sharply at the end of last week, with GBP bulls shrugging off some underwhelming UK GDP figures, amidst their reopening optimism. 

However, this upside in the Pound ground to a halt at the start of the week, as while Boris Johnson confirmed the 19 July reopening will go ahead, he struck a notably more cautious tone than previously. 

Further undermining the GBP/USD exchange rate has been the continued climb in UK coronavirus cases, with investors fearing that some restrictions may need to be reimposed in the future if this translates into a sharp rise in hospitalisations in the coming months. 

Expect to see trade in the Pound remain volatile in the coming week if doubts over the sustainability of the UK’s reopening continue to persist. 

USD/GBP Exchange Rate: US Dollar Jumps as US Inflation Soars 

The USD/GBP exchange rate moved sharply lower at the end of last week’s session, as a sudden improvement in market sentiment on Friday, undermined demand for the safe-haven US Dollar. 

However, the ‘Greenback’ has been quick to bounce back this week as rising cases of the Delta variant of the coronavirus around the world resulted in a risk-off mood prevailing once more. 

This upside in the US Dollar has been reinforced by the latest US CPI release, which reported domestic inflation rocketed up to a new 13-year high of 5.4% last month. 

The surge in inflation is fueling speculation that the Federal Reserve will soon need to start tapering its bond purchases, although this may be put to the test by Fed Chair Jerome Powell when he testifies before Congress on Wednesday evening. 

EUR/USD Exchange Rate: Euro Sees Brief Spike as ECB Alters Inflation Target 

The Euro US Dollar exchange rate moved sharply higher in the second half of last week’s session, after the European Central Bank (ECB) published its long-awaited strategy review, and announced it would be adopting a symmetric inflation target of 2%.

While the new target gives the ECB extra room to get interest rates at record lows for longer, the ECB’s decision not to follow the Fed in allowing inflation to exceed its target for a period to compensate for past weakness, was viewed favourably by EUR investors 

However, the Euro has failed to sustain these gains so far this week, with the currency coming under significant pressure and the EUR/USD exchange rate plunging to a new three-month low amidst a worrying rise in coronavirus cases throughout Europe. 

Still to come this week is the publication of the Eurozone’s own CPI figures, with the Euro potentially coming under more pressure as June’s finalised figures look set to confirm price growth in the bloc slowed to 1.9%.