Pound Euro Exchange Rate Consolidates at Three-Month High Following Strong UK Inflation Print

Pound Euro Exchange Rate Buoyed by Upbeat UK Inflation Figures 

(Updated 14:00, 14/7/21) The Pound Euro (GBP/EUR) exchange rate remains well supported this afternoon, in light of the UK’s stronger-than-expected CPI print. 

With UK price growth close to a three-year high, GBP investors are continuing to speculate on how long the Bank of England (BoE) can maintain its stance that the recent surge in inflation will be temporary. 

Meanwhile, the Euro has been able to cap its losses against the Pound this afternoon, as the single currency benefits from its strong negative correlation with the US Dollar (USD), which is currently down across the board.

Original article continues below: 

Pound (GBP) Firms as Upbeat UK Inflation Bolsters BoE Tightening Specualtion 

The Pound (GBP) is climbing against the majority of its peers this morning, as traders digest the UK’s latest consumer price index. 

According to data published by the Office for National Statistics (ONS), the UK’s inflation rate climbed from 2.1% to 2.5% in June, outpacing expectations of a more modest rise to 2.2% and climbing to its highest levels since August 2018. 

The ONS reported that the rise in inflation was broad in nature, although particularly prevalent in clothing, fuel and food. 

GBP exchange rates rallied following the release, as investors begin to speculate on how the latest rise in inflation could test the Bank of England’s (BoE) stance that the recent surge in price growth is ‘transitory’ 

Sam Cooper, Vice President of Market Risk Solutions at Silicon Valley Bank, comments: 

‘The upside surprise in the UK’s CPI reading could question the BoE’s view that inflation is transitory as the consumer price gauge recorded its second beat in two consecutive months. 

‘The data has provided Sterling with an immediate boost, as it provides evidence inflation is running hot on both sides of the Atlantic and the BoE is subsequently under the same pressures as the Fed to monitor price rises and potentially tighten their grip on monetary policy.’ 

BoE policymaker Dave Ramsden is scheduled to speak later today. Could he undermine the Pound’s gains today if he reiterates the bank’s view that inflationary pressures will soon start to fade? 

Euro (EUR) Undermined by Slump in Industrial Production 

At the same time, the Euro (EUR) is under pressure this morning after the Eurozone’s latest industrial production release printed below expectations. 

Eurostat reports factory output in the bloc contracted 1% in May, plunging from a downwardly revised 0.6% expansion in April, and missing forecasts for a smaller 0.2% slump. 

While the slump in production was attributed to supply chain disruption and not any underlying weakness in the Eurozone’s industrial sector, the lacklustre reading will still raise concerns over the strength of the bloc’s economic recovery in the second quarter. 

Pound Euro Exchange Rate Forecast: Strong UK Wage Growth to Extend the Upside in Sterling? 

Looking ahead, the Pound Euro (GBP/EUR) exchange rate may extend its rally on Thursday, with the publication of the UK’s latest jobs report. 

May’s release is expected to report domestic unemployment held at 4.7%, its lowest level since August 2020. 

However, the accompanying earning figures are likely to be the primary focus for GBP investors as they are expected to report a sharp jump in wage growth. 

Meanwhile, the Euro could face an uphill battle through the second half of this week, amidst growing concern over the rapid spread of the Delta variant of the coronavirus throughout Europe