Pound Euro Exchange Rate Fluctuates as Eurozone Inflation Remains Elevated
The Pound Euro (GBP/EUR) exchange rate is trading erratically this morning as Eurozone inflation eases modestly to 8.5%.
At time of writing the GBP/EUR exchange rate is trading around €1.2573, relatively unchanged from this morning’s opening levels.
Euro (EUR) Firms as Inflation Remains Stronger than Expected
The Euro is climbing modestly against its peers this morning. The latest headline CPI inflation missed expectations and printed at 8.5%.
Despite softening to the lowest level since May 2022, consumer price inflation in the Euro area came in higher than market expectations. After inflation accelerated across the most of the Eurozone’s largest economies, the latest reading could bolster future rate hike bets.
Core inflation, excluding volatile prices such as food and energy, increased for the third consecutive month. Hitting a fresh high of 5.6%, compared to 5.3% in January, further highlighting inflationary pressures are yet to peak.
EUR investors could be buoyed at the prospect of further interest rate hikes. Market expectations of a 50bps raise in May currently sit at 65%, with that figure likely to jump considering the latest inflation data. Elevated rate hike expectations could carry the Euro higher.
Pound (GBP) Quiet amid Prevalent Domestic Headwinds
The Pound is remaining relatively quiet this morning amid a lack of economic data. Further signs of the flagging housing market could be weighing on GBP investors’ minds too.
One of the largest house-builders in the UK have revealed that both sales and reservations have weakened considerably this year. Taylor Wimpey reveals that the broader economic uncertainty continues to weigh on the market. The housing market has cooled considerably amid elevated interest rates.
Elsewhere, a speech from Bank of England (BoE) Governor Andrew Bailey has suggested yesterday that interest rates may have peaked. Bailey added that the central bank will now be adopting a ‘wait and see’ policy, with future economic data to inform policy decisions. He added:
‘At this stage, I would caution against suggesting either that we are done with increasing Bank rate, or that we will inevitably need to do more. Some further increase in Bank rate may turn out to be appropriate but nothing is decided.’
Pound Euro Forecast: BoE Speech to Boost the Pound?
Looking ahead, the Pound Euro exchange rate could see further movement with a speech from Bank of England (BoE) Chief Economist Huw Pill. Titled ‘2023 Economic Outlook – A Year of Growth or Survival?’, Pill could give further indications on how the central bank intends to fight inflation.
Meanwhile, the Euro will be looking to a speech from ECB board member Isabel Schnabel in the wake of the latest inflation data. A continued hawkish rhetoric is unlikely to do any favours for the Pound and could see the Euro pull even clearer.