Pound Euro Exchange Rate Fluctuates amid Softer Eurozone Inflation

Pound Euro (GBP/EUR) Exchange Rate Choppy amid Volatile Trade

(Updated 16:00, 30/11/12) The Pound Euro (GBP/EUR) exchange rate experienced some volatility today before heading lower amid a jittery market mood and surprising data releases. At the time of writing, GBP/EUR is trading at around €1.1564, down marginally from the start of today’s session, with movements remaining erratic.

Earlier today, Eurozone inflation came in below expectations, easing from 10.6% to 10% in November. This initially saw the Euro (EUR) slump as it reinforced expectations that the European Central Bank (ECB) will opt for a smaller half-point interest rate rise at its next policy meeting.

However, cooling inflation and lower interest rates may also spare the Eurozone from recession, or at least mean the economic downturn isn’t as deep or drawn out as previously expected. These hopes limited the Euro’s losses.

Meanwhile, the Pound (GBP) faced headwinds amid bleak economic news. Food inflation hit a record high this month as the UK’s cost-of-living crisis worsens, while two surveys showed a decline in confidence among British businesses.

In addition, comments from Bank of England (BoE) Chief Economist Huw Pill dented Sterling. Pill said that he expects inflation to fall sharply in the second half of 2023 and that while interest rates need to rise further, current market expectations are too high.

While GBP/EUR is currently on a downtrend, today’s volatility could extend into the evening, meaning we may see more fluctuations. Both currencies face headwinds, while mixed US economic data is causing some turbulence in global markets, particularly ahead of a potentially impactful speech by Federal Reserve Chair Jerome Powell.

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Pound Euro (GBP/EUR) Exchange Rate Jumps as Eurozone Inflation Misses Forecasts

(Updated 10:15, 30/11/22) Eurozone inflation came in lower than expected this morning, causing the Pound Euro (GBP/EUR) exchange rate to spike as markets pared back European Central Bank (ECB) interest rate rise bets.

The bloc’s CPI cooled from 10.6% in October to 10% in November, below expectations of 10.4%. The latest data raises hopes that price pressures are easing across the Eurozone, which in turn will take pressure off the ECB to continue aggressively raising interest rates.

Expectations that the ECB will opt for a smaller rate hike at its next meeting dented the Euro (EUR). GBP/EUR spiked, with the Pound (GBP) regaining earlier losses.

However, cooling inflation and the prospect of lower interest rates could help the Eurozone avoid a recession. These hopes may support the single currency, limiting the upside for GBP/EUR.

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Pound Euro (GBP/EUR) Exchange Rate Losses Limited as Markets Await Eurozone CPI

The Pound Euro (GBP/EUR) exchange rate dropped as today’s European session began amid concerns about the UK economy. However, caution ahead of the Eurozone CPI release and following poor German jobs data is limiting the Euro’s (EUR) gains.

At the time of writing, GBP/EUR is trading at around €1.1569, down from €1.1575 at the start of European trading.

Pound (GBP) Slips amid Economic Concerns

The Pound (GBP) dipped as European markets opened this morning, with GBP traders growing anxious about the UK’s economic outlook.

New data from the British Retail Consortium (BRC) revealed that food inflation has jumped to a new record high of 12.4% this month. This puts further pressure on struggling households, who the BRC says face a ‘bleak winter’, as they endure higher energy bills and rising interest rates.

In addition, separate surveys from Lloyds Bank and the Confederation of British Industry (CBI) showed a slump in business confidence as higher costs and reduced consumer spending hit profits.

These troubling headlines hurt Sterling as today’s session began, and the gloomy outlook for the UK economy continues to weigh on GBP.

Euro (EUR) Limited by German Jobless Rate

Meanwhile, the Euro is struggling to press the advantage following a rise in German unemployment.

The unemployment rate in Europe’s largest economy unexpectedly edged up from 5.5% to 5.6% in November. This is the highest jobless rate since July 2021, raising concerns about Germany’s labour market and the possibility of a recession.

Also capping the single currency’s gains, markets are awaiting the Eurozone’s flash inflation rate for November. The results could have a huge impact on the Euro, so many EUR traders seem to be sitting on the side-lines ahead of the release.

Pound Euro Exchange Rate Forecast: Will Cooler Eurozone Inflation Dent EUR?

Looking ahead, Eurozone inflation is in the spotlight. Economists expect the bloc’s CPI to have eased from 10.6% in October to 10.4% in November. However, yesterday German inflation printed below expectations, which may be a sign that the Eurozone’s reading will also come in softer.

If the CPI does show a larger-than-expected pullback in year-on-year inflation, European Central Bank (ECB) policymakers may feel that a smaller 50bps interest rate rise is sufficient at the next policy meeting. As a result, the Euro could fall as investors trim their expectations for further ECB rate hikes.

As for the Pound, UK data is thin on the ground throughout the day. Therefore, domestic news and the market mood could drive movement in the increasingly risk-sensitive Sterling. Could worries about soaring costs, intensifying strike action and higher interest rates hurt the UK currency?

Samuel Birnie

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