Pound Euro (GBP/EUR) Wavers as Markets Brace for US Inflation
The Pound Euro (GBP/EUR) exchange rate is fluctuating as investors move to the sidelines ahead of US inflation data.
At time of writing, the GBP/EUR exchange rate is around €1.1524, relatively unchanged from this morning’s opening levels.
Euro (EUR) Supported by Hawkish ECB
The Euro (EUR) is trading sideways this morning as the market braces for US inflation data. The negative correlation the Euro shares with the US Dollar could see the former climb if inflation data prints to forecast.
After nine months of easing headline CPI, inflation in the US is expected to be unchanged at 5.0%. However, higher fuel prices could offset a slip in core inflation. But with energy prices predicted to continue their fall, headline inflation could resume its downtrend next month. A downbeat CPI could reinforce expectations for Federal Reserve rate cuts sooner than expected. This could see the US Dollar tumble, sending the Euro higher.
Meanwhile, ECB Executive Board Member Isabel Schnabel commented that the central bank still has work to do. She added that the ECB will have to take additional steps to bring inflation back to target. Speaking at a lecture at the Hessischer Kreis in Frankfurt, Schnabel said that the ECB will continue to hike interest rates until it sees core inflation decline sustainably. She commented:
‘Based on today’s data, there is no doubt that we have to do more to bring inflation back to our 2% target in a timely manner.
‘We will raise rates decisively until it becomes clear that core inflation is also declining on a sustained basis.’
Pound (GBP) Boosted by Elevated Rate Hike Bets
Meanwhile, the Pound (GBP) remains fairly quiet against many of its rivals this morning amid a lack of economic data.
With the Bank of England (BoE) interest rate decision scheduled for tomorrow, GBP investors have refrained from making too many moves. Expectations of a 25bps rate hike are all but baked in, but focus will be on the accompanying statement from BoE Governor Andrew Bailey.
On recent hawkish comments, market analysts are expecting further tightening beyond tomorrow’s meeting. As both headline and core inflation remain sticky, far above the central bank’s target rate of 2%, there is a growing consensus that the BoE still has more work to do.
Pound Euro Exchange Rate Forecast: US Inflation Data to Spur the Euro?
Looking ahead, the Pound Euro exchange rate could see further movement with the release of the latest headline CPI inflation for the US. However, if the reading comes in softer than expected, there could be a pause in the Fed tightening cycle soon. If so, the ‘Greenback’ could plummet, sending the Euro sky-rocketing.
Meanwhile, the Pound could be left to trade on market sentiment ahead of the interest rate decision from the BoE tomorrow. Despite a 25bps rate hike all but priced in, attention will shift to the accompanying statement. A hawkish outlook in the forward guidance could boost Sterling.