Pound Euro (GBP/EUR) Stutters as Headline CPI Falls Further than Expected
The Pound Euro (GBP/EUR) exchange rate is softening this morning as inflation in the Euro area softens below expectations as price pressures finally subdue.
At time of writing, the GBP/EUR exchange rate is around €1.1283, a 0.30% fall from this morning’s opening levels.
Euro (EUR) Firms as Inflation Softens to 9.2%
Meanwhile, the Euro (EUR) is strengthening modestly as inflation in the Eurozone followed the likes of Germany and France and softened. Against an expected 9.7%, the headline CPI printed far below predictions at 9.2%.
The latest figure is the lowest in four months as energy prices climbed at a slower rate. However, prices for food, tobacco, and alcohol remain elevated. Meanwhile, core inflation beat expectations and increased to 5.2% from 5%. Rate hike expectations remain elevated as inflation remains far above the European Central Bank’s (ECB) target of 2%.
Elsewhere, Putin’s plans for a ceasefire were short-lived as Ukrainian president Volodymyr Zelenskiy rejected the truce. Russia called for a 36-hour ceasefire to allow Orthodox Russians to celebrate Christmas. But Zelenskiy dismissed the idea, speaking in Russian directly to Putin:
‘(Ending the war means) ending your country’s aggression. And the war will end either when your soldiers leave, or we throw them out.’
Pound (GBP) Undermined by Slowing Housing Market
Meanwhile, the Pound (GBP) struggled for demand this morning as house prices continue their plummet as rising interest rates are compounded by the living cost squeeze. Kim Kinnaird, Director of Halifax Mortgages commented:
‘As we’ve seen over the past few months, uncertainties about the extent to which cost of living increases will impact household bills, alongside rising interest rates, is leading to an overall slowing of the market.’
Following on from a 2.4% drop in November, December’s fall of 1.5% has pulled the annual growth rate down to 2%. However, 2022 was a mixed bag, with a rapid price growth in the first six months of the year, followed by the disastrous mini-budget which drove up mortgage rates, and house prices down.
Elsewhere, rail services across the UK are to be severely impacted by a fresh 48-hour strike. The move follows a 24-hour strike by members of Aslef union, which saw London Victoria and Birmingham New Street without any passenger trains. Network Rail have since estimated the lost ticket revenue due to strikes has now passed £400m. Continued disruption is likely to weigh further on the economy, without an end in sight.
Pound Euro Exchange Rate Forecast: ECB Speech to Bolster the Euro?
Looking ahead, the Pound Euro exchange rate could see further movement with a speech from European Central Bank (ECB) Chief Economist Philip Lane. Investors will shift their attention to how the central bank will respond to the latest inflation figures.
Meanwhile, without any major economic data to go by, the Pound will be left exposed to the domestic woes. Continued industrial action could sap GBP investors as the economy struggles under the strain.