GBP/EUR Wavers on Strengthening Eurozone Inflation
(UPDATED 9:00, 2/3/23)
The Pound Euro (GBP/EUR) exchange rate is struggling to shake off its losses from yesterday. Stronger-than-expected inflation data across the Euro area saw Sterling slump on elevated interest rate hike bets from the European Central Bank (ECB). EUR investors today will be looking to employment data released this morning. Another month of historically low unemployment could see those rate hike expectations soar, boosting the Euro.
Original article continues below:
GBP/EUR Crashes on Higher-than-Expected German Inflation Data
(UPDATED 16:00, 1/3/23)
The Pound Euro (GBP/EUR) exchange rate is tumbling even further this afternoon in the wake of stronger-than-expected inflation in Germany. Against expectations of a softening, which tempered rate hike expectations, headline CPI remained elevated at 8.7%. EUR investors were once again buoyed on further interest rate hikes, sending the Euro soaring. With robust labour market data released earlier in the day, the European Central Bank (ECB) are expected to keep to their tightening cycle.
At time of writing, the GBP/EUR exchange rate is around €1.1247, over a 1% crash from the morning.
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Pound Euro (GBP/EUR) Slips as UK Cost-of-Living Crisis Deepens
The Pound Euro (GBP/EUR) exchange rate is weakening this morning as house prices show first annual drop since 2020, compounded by record-high shop price inflation.
At time of writing, the GBP/EUR exchange rate is around €1.1343, a 0.28% slip from this morning’s opening levels.
Pound (GBP) Undermined by Domestic Woes
The Pound (GBP) appears to have lost all momentum from the successful Northern Ireland protocol deal yesterday. Sterling comes under pressure this morning as economic data highlights the worsening cost-of-living crisis weighing on the UK.
The housing market weakens in the wake of house prices tumbling at the fastest annual rate since 2012. Dropping on an annual basis for the first time in nearly three years, house prices slipped by 1.1%. Nationwide Chief Economist Robert Gardner warned that the flagging sector would struggle to recover in the near-term with rising recession risks, adding:
‘However, conditions should gradually improve if inflation moderates in the coming months as expected, easing pressure on household budgets.’
Meanwhile, both consumers and retailers are feeling the rising cost squeeze as shop price inflation soared to a new record high of 8.4%. Prices surged by the largest annual amount since records began in 2005. Figures released by the British Retail Consortium (BRC) make for uneasy reading for GBP investors as the UK economy continues to stutter.
Euro (EUR) Supported by Elevated Rate Hike Bets
Meanwhile, the Euro (EUR) remains strong against most of its peers this morning after inflation readings for both Spain and France showed increases. With the latest inflation reading for the Eurozone to be released tomorrow, EUR investors remain confident of further interest rate hike bets from the European Central Bank (ECB).
Further supporting the Euro is confirmation that manufacturing production across the Euro area stabilised after eight months of contracting activity. Despite remaining in the contraction territory, manufacturing PMI came in at 48.5, but output rose to a nine-month high. The survey from S&P Global said:
‘According to survey respondents, easing supplier bottlenecks and improved raw material availability reduced the strain on production schedules. Indeed, supplier delivery times shortened to the greatest extent since May 2009. Consequently, cost pressures faced by goods producers eased considerably once again, with the overall rate of input price inflation slowing to a marginal pace that was the weakest in almost two-and-a-half years.’
Pound Euro Exchange Rate Forecast: Easing German Inflation to Pare Rate Hike Bets?
Looking ahead, the Pound Euro exchange rate could see further movement this afternoon when the latest headline CPI reading for Germany is released. An expected softening of inflation in Europe’s largest economy could trim rate hike expectations.
Elsewhere, Bank of England (BoE) Governor Andrew Bailey is due to speak later this morning at a cost-of-living conference. Any indication to how the central bank will continue to battle inflation could influence the Pound.