Pound Euro Exchange Rate Fluctuates as UK Prepares for Another Difficult Year
The Pound Euro (GBP/EUR) exchange rate is trading erratically this morning as the UK faces another record rise in food inflation.
At time of writing the GBP/EUR exchange rate is trading around €1.1361, relatively unchanged from this morning’s opening levels.
Pound (GBP) Undermined by Prolonged Cost-of-Living Crisis
The Pound is struggling for much demand this morning as relentless domestic woes keep a firm lid on Sterling. The British Retail Consortium (BRC) reported another record rise in food inflation as it hit 13.3% in December.
Up from 12.4% in November, retail industry leaders are warning that high inflation will remain throughout 2023. Surging energy prices have heaped pressure on households, with the fallout impacting food prices the most. The BRC reported that this was the highest on record since data has been collected since 2005.
The BRC is warning that the continued elevated cost for fertiliser, animal feed, and energy could see further price increases this year. Helen Dickinson, BRC Chief Executive, commented:
‘It was a challenging Christmas for many households across the UK. 2023 will be another difficult year for consumers and businesses as inflation shows no immediate signs of waning.’
Meanwhile, Chancellor Jeremy Hunt is set to meet business leaders to discuss energy support. Businesses are concerned that the government may halve their support after March, when the existing support package ends.
Euro (EUR) Quiet Despite Price Pressures Finally Cooling
Meanwhile, the Euro is also failing to find much strength despite an improved final services PMI. A preliminary estimate of 49.1 was met with a 49.8 in the Eurozone in December.
The latest figure marked the softest decrease in activity since August of last year, marginally below the threshold of expansion. However, the reading was the highest in four months as price pressures appear to be easing.
Despite pared rate hike expectations with inflation appearing to cool, the economic downturn that has plagued much of the Euro area could finally be easing. Joe Hayes, Senior Economist at S&P Global, said that the cooling price pressures have helped dampen the decline in economic activity levels. He added:
‘The eurozone economy continued to deteriorate in December, but the strength of the downturn moderated for a second successive month, tentatively pointing to a contraction in the economy that may be milder than was initially anticipated.’
Pound Euro Forecast: Softening Eurozone Inflation to Weigh on Euro?
Looking ahead, the Pound Euro exchange rate could see further movement with the Euro area inflation rate on Friday. An expected further softening of headline CPI could see rate hike expectations slashed.
Meanwhile, the Pound could see further fluctuations with the release of both services and manufacturing PMI data. An expected improvement in the service sector could be offset by a return to contracting manufacturing activity.