Pound Euro (GBP/EUR) Exchange Rate Fluctuates Ahead of Inflation Rate Readings
(Updated 16:35, 18/07/23) The Pound Euro (GBP/EUR) exchange rate continued to waver today amid a lack of notable economic data and ahead of tomorrow’s inflation rate readings.
Tomorrow, both the UK and Eurozone consumer price indexes for June are due out.
The UK reading is set to show that British price pressures remains stubbornly persistent, with core inflation expected to hold at a 31-year. Meanwhile, the Eurozone’s final release is likely to confirm a notable cooldown in inflation.
As a result, tomorrow could bring gains for the Pound Euro exchange rate. However, UK recession fears could limit the Pound’s (GBP) upside potential.
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Pound Euro (GBP/EUR) Exchange Rate Wavers amid Lack of Data
The Pound Euro (GBP/EUR) exchange rate fluctuated this morning, briefly dropping to a 16-day low before bouncing back, as a lack of UK and Eurozone data leaves the currency pairing without a clear direction.
At the time of writing, GBP/EUR is trading at around €1.1643, having rebounded from a low of €1.1617.
Pound (GBP) Quiet as Investors Await UK Inflation
The Pound (GBP) is somewhat subdued today, as GBP investors opted to wait on the side lines ahead of the UK consumer price index due out tomorrow morning.
The CPI could be instrumental in guiding the Bank of England’s (BoE) hand at its next policy meeting. Signs of stubborn inflation could see the bank hike rates by 50bps, while a surprise slowdown may increase the odds of less hawkish action. Understandably, GBP traders seem to be avoiding placing any aggressive bets today.
That said, expectations that the BoE will feel forced to press ahead with further tightening is keeping a floor underneath Sterling. After the GBP/EUR exchange rate dropped sharply at the open of the European session, it quickly recovered.
Furthermore, a current upbeat market mood seems to be providing the increasingly risk-sensitive Pound with some support against its safer peers.
Euro (EUR) Muted in Absence of Data
Meanwhile, the Euro (EUR) is also facing thin trading conditions, leaving it unable to climb against the subdued Pound.
Eurozone data remains in short supply today, and a risk-on market mood is putting a slight dampener on the single currency’s appeal.
One factor supporting the Euro, however, is the currency’s negative correlation to a weaker US Dollar (USD). The American currency remains firmly on the defensive following a sharp selloff last week. As EUR/USD is the most traded currency pairing globally, this USD weakness is aiding the Euro.
Pound Euro Exchange Rate Forecast: UK Inflation to Boost GBP?
Looking forward, risk appetite could drive the currency pairing today. If the mood remains upbeat, GBP/EUR could strengthen.
The UK CPI on Wednesday morning could then drive notable volatility in the Pound Euro pair.
At the time of writing, economists expect headline inflation to have eased from 8.7% to 8.2%. While this would mean inflation was at a 15-month low, it’s still well above both the BoE’s target and the Eurozone inflation rate. Meanwhile, core inflation is set to hold at a 31-year high of 7.1%.
If the CPI figures print as expected, it will likely cement expectations that the British central bank will deliver another half-point rate hike at its meeting in two weeks’ time.
However, core inflation has exceeded expectations for the past two months running. Signs that underlying inflation is proving far stickier than the BoE expected have raised concerns that the bank will decide to hike the UK economy into a recession in order to cool price pressures. Another rise in the core rate could reignite recession fears and trigger GBP volatility.
The Eurozone’s own final CPI is due out on Wednesday too. This is unlikely to drive notable movement unless it differs from the preliminary reading, although confirmation of a sharp slowdown could apply some pressure to EUR.