Pound Euro Exchange Rate Stalls as UK Inflation Surges
The Pound Euro (GBP/EUR) exchange rate is trapped in a narrow range this morning. As markets react to the latest UK consumer price index.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1728. Virtually unchanged from this morning’s opening rate.
Pound (GBP) Muted despite Surging Inflation
The Pound (GBP) is struggled to attract support this morning. Despite a hotter-than-expected UK inflation print.
According to data published by the Office for National Statistics (ONS), UK inflation climbed to new 40-year high of 9.4% in June. This was up from 9.1% in May and beat forecasts for a slightly more modest acceleration to 9.3%.
UK inflation jumps to 9.4% in year to June, with prices increasing at fastest rate for 40 years, driving up cost of living https://t.co/dOBmczPRnW
— BBC Breaking News (@BBCBreaking) July 20, 2022
While the latest spike in inflation will place more pressure on the Bank of England (BoE) to accelerate its current tightening cycle, the bank has so far remained non-committal on the prospect of more aggressive interest rate hikes.
Speaking yesterday BoE Governor Andrew Bailey said a 50bps hike is ‘on the table’, but also warned that such a hike is ‘not locked in’.
Analysts warn the BoE also faces a balancing act as raising rates too quickly could tip the UK inflation a recession.
Suren Thiru, economics director of accountancy trade body ICAEW, said:
‘Soaring inflation means that momentum for a half-point interest rate rise in August is growing. However, tightening monetary policy too aggressively increases the risk of recession and will do little to address the global factors driving this inflationary surge.’
In the meantime, the Pound is muted as the latest surge in inflation reignites concerns over the UK’s cost of living crisis.
As the gap between inflation and real pay grows ever wider. Analysts warn that economic growth will become increasingly anaemic as consumers are forced to further rein in their spending.
Euro (EUR) Buoyed by ECB Rate Hike Speculation
The Euro (EUR) remains well supported this morning, ahead of the European Central Bank’s (ECB) impending interest rate decision.
The ECB is set to conclude its latest policy meeting on Thursday, with the bank widely expected to deliver its first rate hike in over a decade.
The ECB previously signalled that it will start off with a modest 25bps hike. However recent reports suggest the bank is now considering a 50bps hike this week. Speculation over which has helped underpin the Euro in recent trade.
Pound Euro Exchange Rate Forecast: Slump in Consumer Confidence to Sap EUR Sentiment?
Ahead of the ECB’s rate decision, the Pound Euro (GBP/EUR) exchange rate may see movement on the back of the Eurozone’s latest consumer confidence figures.
July’s preliminary index is expected to report another slump in consumer sentiment. Morale having previously dropped to a two-year low in June.
This could place some pressure on the Euro this afternoon. Although any downside is likely to remain limited as EUR investors limit their aggressive bets ahead of the ECB rate decision.
Meanwhile, the focus for GBP investors in the second half of the week will turn to the UK’s latest retail sales figures.
Will another contraction in sales growth in June raise fresh concerns over the strength of the UK economy and push the Pound lower?