Pound Euro (GBP/EUR) Exchange Rate Climbs to Two-Week High Following UK Inflation Figures

Pound Euro Exchange Rate Buoyed Following UK CPI Release

The Pound Euro (GBP/EUR) exchange rate struck a new two-week high this morning. The latest uptick in the pairing comes on the back of the UK’s latest inflation figures.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1676. Up almost 0.3% from this morning’s opening rate.

Pound (GBP) Firms as Core Inflation Remains Sticky

The Pound (GBP) trades with modest gains this morning, but this is enough to propel GBP/EUR to a new two-week high.

The uptick in Sterling follows the publication of the UK’s consumer price index. July’s CPI figures reported headline inflation slowed from 7.9% to 6.8% as expected.

However, the accompanying core figures didn’t fall in line with forecasts. Underlying inflation held at 6.9% in July, rather than falling to 6.8%.

It’s this surprisingly sticky core CPI reading that appears to be propping up demand for the Pound this morning. As this may complicate the Bank of England’s (BoE) plans for monetary policy.

Oliver Blackbourn, multi asset portfolio manager at Janus Henderson Investors, comments:

‘Stubbornly high core inflation presents a headache for the BoE as it will want to see this less volatile measure decline to suggest that cost pressures are sustainably returning to target.

‘Core inflation suggests a stickier underlying inflation dynamic as services cost growth continued to accelerate.’

This also comes hot on the heels of Tuesday’s jobs report. Where a record increase in wage growth also fuelled BoE rate speculation and boost the Pound Euro exchange rate.

Euro (EUR) Supported by Upbeat Data

The Euro (EUR) is on the defensive against the Pound, but has found modest support elsewhere, following the publication of the Eurozone’s latest data.

Eurozone industrial production saw an unexpected rise in June. Factory output rose 0.5% month-on-month. Beating forecasts for a 0.1% decline.

This was accompanied by the Eurozone’s latest GDP figures. The second estimate of growth confirmed the bloc expanded by 0.3% in the second quarter.

Pound Euro Exchange Rate Forecast: Slump in UK Retail Sales to Pull Sterling Lower?

Looking ahead to the second half of the week, the publication of the UK’s latest retail sales figures could see the Pound Euro (GBP/EUR) exchange rate retreat from its current highs.

Economists forecast UK sales growth will have plummeted from 0.7% to -0.5% in July. Signs that consumer spending is weakening could sap Sterling sentiment if its dents BoE rate hike bets.

Meanwhile, Friday will also see the publication of the Eurozone’s own CPI data. July’s finalised figures are also expected to confirm core inflation in the bloc held steady last month, which may offer some support to the Euro.

Also of note to EUR investors will be a speech by European Central Bank (ECB) policymaker Philip Lane. Expect to see the Euro strengthen if he strikes a broadly hawkish tone.

Matthew Andrews

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