Pound Euro Exchange Rate Flat Following Eurozone Inflation Release
The Pound Euro (GBP/EUR) exchange rate is trading in a narrow range this morning as investors digest the latest Eurozone inflation figures.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1744. Virtually unchanged from this morning’s opening rate.
Euro (EUR) Muted Despite Inflation Surge
The Euro (EUR) is mostly subdued this morning, following the Eurozone consumer price index.
According to data published by Eurostat, inflation in the Eurozone jumped from 7.4% to a record 8.1% in May. This blew past expectations for a more modest rise to 7.7%.
Euro area #inflation up to 8.1% in May 2022: energy +39.2%, food +7.5%, other goods +4.2%, services +3.5% – flash estimate https://t.co/WM37Cpkg33 pic.twitter.com/ohFS4NIVUX
— EU_Eurostat (@EU_Eurostat) May 31, 2022
The latest uptick in inflation will reaffirm European Central Bank (ECB) rate hike expectations.
ECB Governing Council member Francois Villeroy de Galhau, suggested the Eurozone inflation figures support the need for the bank to accelerate its return to normalised monetary policy.
Villeroy said:
‘May inflation figures confirm our expectations for an increase and need for progressive monetary normalisation.’
However with the ECB’s upcoming July hike largely priced in by EUR investors, the Euro’s upside potential appears limited.
The Euro’s struggle to attract support this morning may also be attributed to its negative correlation with the US Dollar (USD), which is rallying this morning.
Pound (GBP) Flat as Analysts Warn Against Aggressive BoE Rate Hike Bets
The Pound (GBP) is trading without any strong conviction this morning. As analysts warn over Bank of England (BoE) rate hike bets.
GBP investors have grown more confident that the BoE will continue to raise interest rates after the government’s unveiling of a £15bn cost of living support package.
However analysts at Commerzbank are more cautious in their outlook:
‘The market seems to be of the view that the spending package might cause interest rates in the UK to raise more. But of course, the BoE might have something to say on that too. Moreover, it will have to be seen first whether the fiscal policy measures are suited to preventing a stronger economic downturn.
‘We remain cautious as regards Sterling and assume that the BoE will not tighten its monetary policy as much as the market expects and that high inflation levels will put pressure on Sterling over the coming months.’
Pound Euro Exchange Rate Forecast: Fall in Eurozone Unemployment to Buoy Euro?
The Pound Euro (GBP/EUR) exchange rate may soften further on Wednesday with the publication of the Eurozone’s latest unemployment release.
April’s figures are expected to report unemployment in the bloc fell from 6.8% to 6.7%. The continued fall in unemployment may help to undermine ECB rate hike expectations and further boost the Euro.
However any upside in the Euro may remain limited if ECB President Christine Lagarde uses her speech to push back against calls for the bank to deliver a 50bps hike in July.
The absence of any notable UK data is likely to leave the Pound directionless tomorrow. Thin trading conditions could also begin to limit GBP movement ahead of the long Jubilee weekend.