Pound Euro (GBP/EUR) Exchange Rate Wavers amid Sticky UK Inflation

Pound Euro (GBP/EUR) Quiet as UK Economic Outlook Remains Uncertain

(Updated 20/4/23, 08:45)

The Pound Euro (GBP/EUR) exchange rate appears to be in a consolidation phase this morning as the rally in the wake of stronger-than-expected inflation wanes. Concerns over the economic outlook for the UK resurface, with inflation remaining sky-high. The cost-of-living crisis could dampen demand for Sterling as ‘greedflation’ is set to limit consumer spending, with an expected substantial fall in UK retail sales highlighting the issue.

At time of writing, the GBP/EUR exchange rate is around €1.1346, relatively unchanged from this morning’s opening levels.

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GBP/EUR Firms as Markets Brace for Further Rate Hikes

(Updated 19/4/23, 16:45)

The Pound Euro (GBP/EUR) exchange rate is holding onto its earlier gains after inflation printed higher than expected. With inflation remaining in double digits, analysts are expecting at least two more hikes before the end of the year. Deutsche Bank sees the Bank of England (BoE) raising rates in both May and June:

‘We now expect the MPC to push through two more hikes, taking Bank Rate to the very top end of our terminal rate projection at 4.75% in June. We expect the MPC to stick to its current data-dependent message in May. And importantly, we now see risks to our terminal rate forecast skewed to the upside.’

At time of writing, the GBP/EUR exchange rate is around €1.1351, a 0.28% climb from this morning’s opening levels.

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Pound Euro Strengthens as Inflation Remains in Double Digits

The Pound Euro exchange rate is firming as inflation in the UK printed higher than expected, bolstering interest rate hike bets.

At time of writing, the GBP/EUR exchange rate is around €1.1353, a 0.29% jump from this morning’s opening levels.

Pound (GBP) Rallies on Elevated Rate Hike Odds

The Pound (GBP) is strengthening against its peers this morning as inflation in the UK printed higher than expected. Against expectations of a modest easing to 9.8%, headline CPI remains stubborn and fails to drop below double digits.

The Office for National Statistics (ONS) reported that consumer inflation fell to just 10.1%, after last month’s surprise uptick to 10.4%. Food and drink prices soared by 19.1%, increasing at the fastest rate since 1977. A decline in energy prices helped soften inflation, but these drops were offset by rapidly accelerating prices for food and non-alcoholic drinks. Grant Fitzner, Chief Economist at ONS, commented:

‘The main drivers of the decline were motor fuel prices and heating oil costs, both of which fell after sharp rises at the same time last year. Clothing, furniture and household goods prices increased, but more slowly than a year ago.

However, these were partially offset by the cost of food, which is still climbing steeply, with bread and cereal price inflation at a record high.’

Expectations of the BoE raising the interest rates next month have now increased, with the markets pricing in a 97% chance of another hike. The base rate will rise to 4.5%, with many expecting the cash rate to hit 5% by the autumn. The Pound could remain supported as the central bank looks all but certain to raise the interest rates for a 12th consecutive time.

Euro (EUR) Supported by Rate Hike Expectations

Meanwhile, the Euro (EUR) is trading with mixed success this morning amid a quiet trading calendar.

European Central Bank (ECB) Chief Economist Philip Lane lent support to the Euro yesterday after backing further interest rate hikes. The central bank expected to raise interest rates for the seventh consecutive time in May. However, the only speculation left is the size of the hike.

After turmoil in the banking sector finally receded, and energy prices falling, inflation still remains far too high. Lane, speaking on Bloomberg TV, added:

‘As of now, two weeks away, I think the baseline is that we should increase interest rates in May but what we do in terms of scale, I’m not going to set a default number.’

Pound Euro Exchange Rate Forecast: ECB Speeches to Spur the Euro?

Looking ahead, the Pound Euro exchange rate could see further movement with speeches from ECB policymakers. Both ECB Chief Economist Philip Lane and Governing Council Member Isabel Schnabel are set to speak later today. Further hawkish comments could provide Euro a boost.

Meanwhile, the Pound will be left to trade on sentiment as data is scarce for the rest of the day. With investors continuing to digest the latest inflation data, Sterling could fluctuate on rate hike expectations.

Danny Tingle

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