Pound Euro (GBP/EUR) Exchange Rate Climbs as Eurozone Inflation Cools
(Updated 13:55, 01/06/23) The Pound Euro (GBP/EUR) exchange rate rose to a fresh six-month high today, breaking above €1.1650, after the latest Eurozone consumer price index dampened European Central Bank (ECB) interest rate expectations.
The Eurozone CPI came in below expectations, showing that inflation in the bloc cooled rapidly last month. The headline reading eased from 7% to 6.1%, versus the expected 6.3%. Meanwhile, core inflation dropped from 5.6% to 5.3%, although economists had only expected a 0.1 percentage point decrease.
The data dented expectations for more interest rate rises from the ECB, pushing the Euro (EUR) lower.
However, ECB President Christine Lagarde sought to counter the pullback in rate hike bets. Lagarde commented:
‘Today, inflation is too high and it is set to remain so for too long.
‘That is why we have hiked rates at our fastest pace ever – and we have made clear that we still have ground to cover to bring interest rates to sufficiently restrictive levels.’
These comments may have limited EUR’s downside, although they didn’t prevent the single currency slipping to a six-month low against Pound Sterling (GBP). While the ECB will likely raise rates by a further 25bps in two weeks’ time, markets are reining in their expectations for more hikes beyond that point.
At the time of writing, GBP/EUR is trading at €1.1654, around its highest level since early December 2022.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Stays Strong as Markets Await Eurozone Inflation
The Pound Euro (GBP/EUR) exchange rate is holding steady this morning after hitting a six-month high yesterday evening. With the Eurozone’s latest consumer price index due out today, the pairing could climb even higher.
At the time of writing, GBP/EUR is trading at around €1.1633. This is virtually unchanged on the day and just shy of yesterday’s six-month high of €1.1649.
Euro (EUR) Subdued as Inflation Reading Looms
The Euro (EUR) is muted this morning as EUR investors await the latest Eurozone consumer price index.
The European Central Bank (ECB) has recently indicated it will take a data-driven approach to monetary policy, with some commentators speculating that the bank is nearing the end of its hiking cycle. Today’s CPI reading is a key release to help determine how much higher the ECB will raise interest rates.
Stubborn core inflation could push the bank to continue hiking. But French and German inflation yesterday cooled more than forecast.
As a result, EUR investors are hesitant to place any aggressive bets ahead of the release. This is keeping the Euro subdued, languishing at a six-month low against the Pound (GBP).
Pound (GBP) Underpinned by BoE Bets and Risk-On Mood
As for Sterling, the UK currency is holding near recent highs as expectations of more Bank of England (BoE) interest rate rises continue to underpin GBP exchange rates.
After a surprise spike in UK core inflation last week, there is a growing consensus that the bank will deliver multiple more rate hikes this year.
An upbeat market mood is also supporting the increasingly risk-sensitive Pound. Yesterday, the US House of Representatives passed legislation to lift the US debt ceiling limit. Investors had been fearful that a political deadlock would lead to the US defaulting on its debt, which would have sent shockwaves through the global economy. With the deal passing a major hurdle, relief is cheering markets.
Pound Euro Exchange Rate Forecast: ECB Expectations to Drive the Pairing
Looking ahead, the Eurozone’s latest consumer price index is in the spotlight.
Economists expect headline inflation to have cooled sharply last month, while core inflation is set to have ticked lower at a far slower pace. If the CPI prints as forecast, it could dampen ECB interest rate rise bets, thereby dragging the Euro down.
The common currency could face even steeper losses if the data prints below forecasts, as French and German inflation did yesterday.
Monetary policy speculation will likely continue to impact EUR exchange rates through the day, with ECB President Christine Lagarde due to speak shortly after the latest inflation readings are published. Lagarde’s comments could amplify the Euro’s movement.
Shortly after noon, the ECB will publish the minutes from its last policy meeting. Any signs that the bank would consider pausing its tightening cycle if inflation continues to cool could further dent EUR.
As for the Pound, the only data of note today is the final manufacturing PMI, which is only likely to prompt movement if it differs from preliminary estimates.
This may leave Sterling to trade in relation to risk sentiment. If markets remain upbeat, this could support the riskier Pound versus the safer Euro.