Pound Euro Exchange Rate Steady Following UK Inflation Release
The Pound Euro (GBP/EUR) exchange rate is trading in a narrow range so far this morning, following the release of the UK’s latest inflation figures.
At the time of writing the Pound Euro exchange rate is trading at around €1.1627. Virtually unchanged from this morning’s opening rate.
Pound (GBP) Holds Ground as Inflation Cools
The Pound (GBP) is mostly rangebound so far this morning as markets digest the UK’s consumer price index.
According to data published by the Office for National Statistics (ONS), domestic inflation slowed from 11.1% to 10.7% in November, below forecasts inflation would slow to 10.9%.
This was the sharpest decline in inflation in 16 months and lead to speculation UK inflation may have ‘peaked’.
However upside potential in the Pound appeared limited. Analysts warned last month’s drop in inflation is unlikely to relieve much of the pressure on UK consumers.
Sharpest fall in inflation in 16 months will be of more comfort to policy makers than families, says @jackhleslie , in response to the latest @ONS inflation data https://t.co/C5xd04eAaQ pic.twitter.com/fh51USESts
— Resolution Foundation (@resfoundation) December 14, 2022
Most importantly for GBP investors however is how the cooldown in inflation could complicate the Bank of England’s (BoE) monetary policy balancing act.
Nicholas Hyett, investment analyst at Wealth Club, comments:
‘This raises some difficult questions for policy makers. On the one hand headline inflation is easing, but… “core inflation” remains untamed. That’s a headache for central bankers – raising rates might help bring domestic inflation under control, but it will also exacerbate the cost of living crisis and potentially condemn the UK to a painful recession.’
The uncertainty over what November’s inflation print could mean for the BoE’s future rate decisions is likely to see the Pound Euro exchange rate continue to trade sideways through today’s session.
Euro (EUR) Muted Following Plunge in Eurozone Industrial Production
The Euro (EUR) is trapped in a narrow range so far this morning. A larger-than-expected drop in Eurozone industrial production is countering gains stemming from broad US Dollar (USD) weakness.
Eurostat reported industrial production in the bloc contracted by 2% in October, versus the 1.5% slump forecast.
The dramatic slump in factory output at the start of the fourth quarter raises fresh concern over Eurozone growth at the end of 2022.
The disappointing release is offsetting gains linked to the Euro’s negative correlation with the US Dollar. After USD exchange rates fell sharply on Tuesday.
Pound Euro Exchange Rate Forecast: BoE and ECB Rate Decision to Infuse Volatility into GBP/EUR?
The BoE’s and European Central Bank’s (ECB) final interest rate decisions of 2022 will no doubt act as the main catalysts of movement in the Pound Euro (GBP/EUR) exchange rate tomorrow.
The BoE is expected to deliver a 50bps rate hike, after a bumper 75bps increase in November.
With a 50bps increase largely priced in, any movement in the Pound may be linked to the BoE’s forward guidance for 2023. A cautious outlook may drag on Sterling.
While the majority of analysts expect a 50bps hike from the ECB as well, there is an outside chance of another oversized 75bps increase.
Expect to see the Euro surge if the ECB opts to maintain its current hawkish interest rate trajectory.