Pound Euro (GBP/EUR) Exchange Rate Trades Sideways on Lacklustre CPIs
The Pound Euro (GBP/EUR) exchange rate is trading in narrow range today as both currencies struggle for a clear directional bias.
GBP/EUR is currently trading at around €1.1738 having regained some overnight losses after dipping in the run up to the European session today.
Pound (GBP) Muted as CPI Misses Expectations
The Pound (GBP) is struggling for direction against the Euro today after the UK’s CPI came in slightly lower than expected.
The latest CPI from the Office for National Statistics (ONS) showed that headline inflation came in at 2% in July, down from the previous month’s 2.5% and below expectations of 2.3%. This was the first time UK inflation had slowed since February this year.
However, economists expect the drop to be temporary.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said:
‘July’s decline in CPI inflation is attributable to the sharp increase in prices a year ago, when the economy emerged from lockdown and the ONS stopped imputing prices for goods and services that were previously unavailable.’
Meanwhile James Smith, developed markets economist at ING, believes inflation will come close to 4% this year before cooling off in 2022:
‘Despite a temporary setback in July, UK inflation is unlikely to be far off 3% in August and will probably be fairly close to the Bank of England’s 4% forecast by November. But things are likely to calm down into 2022, and we don’t think inflation will be enough of a concern for policymakers to hike interest rates before late next year.’
The CPI may have initially disappointed GBP bulls who were hoping for inflation to overshoot, but as markets analyse the data the downside may be limited.
Euro (EUR) Quiet ahead of FOMC Minutes
The Euro (EUR) is also trading without a clear directional bias today, with EUR investors seemingly hesitant ahead of the minutes from the latest Federal Open Market Committee (FOMC) meeting, which will be released this afternoon.
Following recent strong jobs data from the US, some analysts think the Federal Reserve will make an announcement on tapering bond purchases before the end of this year.
With the strong negative correlation between USD and EUR, any hawkish hints in the latest meeting minutes could dent the Euro. As such, investors may be reluctant to place any aggressive bets on the single currency today.
Additionally, the finalised Eurozone inflation data came in as expected, failing to prompt EUR movement in either direction.
Pound Euro Exchange Rate Forecast: GBP/EUR to Trade in a Narrow Range?
The Pound Euro pair could continue to trade sideways for the rest of the day, though any unexpected coronavirus or domestic economic news could drive movement in either currency.
If we see USD jump following the FOMC meeting minutes this evening, the single currency could weaken, thereby boosting GBP/EUR.