Pound Euro (GBP/EUR) Exchange Rate Remains Subdued as US CPI Data Buoys EUR

GBP/EUR Exchange Rate Trends Lower Following US Inflation Release

(Updated 17:15, 10/08/2023) The Pound Euro exchange rate dropped further still this afternoon as headline inflation in the US increased, but by less than predicted.

July’s CPI reading rose to 3.2%, while core inflation eased to 4.7%. Rather than kindling hopes of a hawkish policy response from the Federal Reserve bank, the data reinforced expectations that the Fed is nearing the end of it’s rate-hiking cycle.

In response, the US Dollar (USD) tumbled, boosting the Euro (EUR) on account of the currencies’ strong negative correlation.

Simultaneously, bearish predictions for the UK economy weighed further on the Pound (GBP). New research from Acas, a government-funded arbitration service, revealed that Britain’s cost-of-living crisis is having a prolonged effect on UK employees: more than a third of bosses report an increase in staff working from home, likely in order to avoid transport costs.

According to Acas’s chief executive Susan Clews:

‘For some workers, the cost of commuting is eating into their budgets, while for others, going to their workplaces saves on home energy costs… it is unsurprising that over a third of employers have seen an increase in staff working from home.’

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Drops on Low Sterling Morale

The Pound Euro (GBP/EUR) exchange rate remains subdued this morning as claims the Britain’s economy is facing a rocky road ahead continue to depress the Pound (GBP). Meanwhile, the Euro (EUR) extends its gains on the back of US Dollar (USD) weakness.

At the time of writing, GBP/EUR is trading at €1.1576, just below this morning’s opening levels.

Pound (GBP) Dented by Downbeat Predictions

The Pound is struggling to climb as today’s session commences, weighed upon by bleak forecasts from economists who say Britain faces ‘stuttering growth’.

Yesterday, the National Institute of Economic and Social Research (NIESR) predicted a ‘60 per cent risk’ of a recession at the end of 2024: this morning, news of protracted weakness in Britain’s housing sector has done little to boost GBP.

According to the Royal Institution of Chartered Surveyors (RICS), the UK’s house price gauge has fallen to its lowest point since 2009 amid rising interest rates – meanwhile, rents are climbing at the broadest rate since 1999.

RICS chief economist, Simon Rubinsohn, observes:

‘Demand shows no signs of letting up, supply remains constrained and that means rents are likely to continue rising sharply despite the cost-of-living crisis.’

This is undeniably bad news for Britain’s struggling consumers, already struggling with persistent inflationary pressures. According to the Office for National Statistics (ONS), the Consumer Prices Index (CPI) rose by 7.9% in the 12 months to June 2023: inflation in the UK remains higher than in any other G7 countries.

Euro (EUR) Firms despite Uncertain Growth Outlook

The Euro (EUR) is trending up against several of its peers today, despite uncertainty regarding economic growth and inflation in the bloc.

In its Economic Bulletin article on Thursday, the European Central Bank (ECB) noted:

‘The near-term economic outlook for the euro area has deteriorated, owing largely to weaker domestic demand. High inflation and tighter financing conditions are dampening spending.

The outlook for economic growth and inflation remains highly uncertain.’

Strength in the single currency may be owing to bearish sentiment among US Dollar traders ahead of this afternoon’s inflation release. Due to the strong negative correlation between the Euro and the ‘Greenback’, weakness in the latter often leads to an uptrend in EUR.

Economists predict that US consumer price inflation rose to 3.3% in the year to July from a two-year low of 3% the month previous. Such a result could complicate assumptions that price pressures are easing – USD investors await this afternoon’s release on tenterhooks.

GBP/EUR Forecast: US Data to Shape Exchange Rate Movement?

The GBP/EUR exchange rate is likely to trade this afternoon according to the results of the latest US inflation reading. As the world’s largest economy, the release of pertinent US data generally impacts the whole of the currency market.

If the data indeed reveals a rise in US CPI, investor uncertainty may trigger a risk-off mood, likely depressing GBP/EUR as the Euro is the safe-haven asset of the two currencies. Moreover, USD weakness would most probably buoy the single currency on account of its negative correlation with the ‘Greenback’.

Elsewhere, external influences could have some effect on the GBP/EUR exchange rate. Growing tension between the US and China, for example, may trigger a bearish market mood.

Olivia Evershed

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