Pound Euro Exchange Rate Slips following US CPI

Pound Euro (GBP/EUR) Stumbles as EUR Enjoys Dip in USD

(Updated 15:45, 12/1/22) The Pound Euro (GBP/EUR) exchange rate slipped following the US CPI release, which disappointed investors who were hoping for a hotter-than-forecast reading.

After wavering in the morning, the Pound (GBP) began gaining ground against the Euro (EUR). GBP investors shrugged off political jitters around the ‘partygate’ allegations and instead capitalised on a cautious single currency ahead of the US inflation results.

As the Euro and the US Dollar (USD) share a strong negative correlation, EUR investors were understandably hesitant to place any aggressive bets before the US CPI. A higher-than-forecast CPI print would likely prompt faster action from an increasingly hawkish Federal Reserve.

However, the US inflation rate for December printed in line with market consensus at 7%. Although this was a high reading, markets are already preparing for the Fed to tighten policy. As a result, some USD investors decided to sell-off. This, in turn, relieved pressure on the Euro and supported it against the Pound.

At the time of writing, the Pound Euro pair is trading at around €1.1985. This is marginally below today’s opening level of €1.1995 and 0.16% down from today’s high of €1.2004.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Wobbles ahead of US CPI

The Pound Euro (GBP/EUR) exchange rate is struggling for a clear direction so far today.

In the UK, Covid cases are falling, but Prime Minister Boris Johnson faces a backlash over ‘partygate’ allegations. Meanwhile, the Euro (EUR) is fairly quiet ahead of the US CPI this afternoon.

Pound (GBP) Mixed on Upbeat Covid News and ‘Partygate’ Scandal

The Pound (GBP) is wavering against the Euro so far today. However, it’s currently up on the week’s opening levels and higher than yesterday’s closing rate.

The upside could be due to UK Omicron optimism. UK Covid cases by date reported have fallen significantly over the last seven days. Infections hit a peak of 218,724 on 4 January but have declined almost every day over the last week. Yesterday’s figure printed at 120,821.

Although deaths and hospitalisations remain high, hospital admissions also seem to have peaked. A blog post by Dr Richard Cree, an intensive care consultant at the James Cook University Hospital in Middlesbrough, has garnered some media attention today. In the optimistic post, Cree writes:

‘[T]he number of people being admitted hasn’t risen as high as I feared it might and it may even be starting to plateau. I will admit that I thought things might be worse by now but I’m all too happy to be proved wrong. It’s looking increasingly likely that we may be able to ‘ride out’ the Omicron wave after all.

‘There is now no doubt that the Omicron variant is far less severe than its predecessors. In many respects, this fourth wave feels like it is due to a different virus.’

However, political jitters may be undermining Sterling. Boris Johnson will face tough questioning from both the opposition and his own backbenchers today after a leaked email suggests he attended a potentially illegal party during lockdown at 10 Downing Street.

With many Tory MPs openly condemning the Prime Minister’s alleged behaviour, there are murmurings of a potential vote of no confidence. Such political uncertainty would be bad for the Pound, and may be offsetting UK Covid optimism today.

Euro (EUR) Quiet as Investors Await US CPI

Meanwhile, the Euro seems rather quiet this morning ahead of the US inflation rate reading.

Economists expect US inflation to have risen to 7% in December, as the Federal Reserve gears up for more muscular policy action. If the CPI overshoots, this could drive an upside in the US Dollar (USD), which could then weigh on the Euro due to the two currencies’ negative correlation.

As a result, EUR investors may be exercising caution today.

Pound Euro Exchange Rate Forecast: US CPI in Focus

As the day progresses, we may experience some fluctuations in the Pound Euro pair.

Markets may begin to reposition ahead of the US CPI, which could in turn trigger some movement. If it prints higher than expected, a stronger US Dollar might weigh on the Euro.

At noon, Boris Johnson faces a grilling at PMQs. If there are any significant political developments then this could impact the Pound.

In addition, surging energy bills are back in the headlines today. The CEO of Centrica – the UK’s largest energy supplier – has said that higher energy costs could last for up to two years. If energy worries and the UK’s cost-of-living crisis continue to get media attention today, this may also put some pressure on GBP.

Samuel Birnie

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