The Pound Euro (GBP/EUR) exchange rate fluctuated this morning, with an initial dip being reversed in the wake of the Eurozone’s latest inflation figures.
At the time of writing the GBP/EUR exchange rate is trading at €1.1536. Virtually unchanged from this morning’s opening rate.
Euro (EUR) Retreats as Eurozone Inflation Slows
The Euro (EUR) shed its initial gains this morning following the release of the Eurozone’s latest consumer price index.
September’s preliminary CPI figures reported inflation slowed from 5.2% to 4.3%. This was below forecasts for a more modest deceleration to 4.5% and was the weakest inflation print in two years.
As inflation continues to cool within the Eurozone, investors speculate that the European Central Bank (ECB) will likely leave interest rates unchanged, weakening the Euro.
Diego Iscaro, head of European economics at S&P Global Market Intelligence, commented:
‘The figures reinforce the view that interest rates have likely reached their peak in the current tightening cycle. Excluding an acceleration in underlying inflationary dynamics over the coming months, the focus will now switch to the duration for which the current level of rates will be maintained. We currently expect the first cut in rates to materialise in June 2024’.
Furthermore, ECB President Christine Lagarde has signalled in a speech this morning that the central bank is likely done tightening policy. The combination of cooling inflation rates and Lagarde’s dovish remarks leave the Euro vulnerable to retesting its recent lows.
Pound (GBP) Muted despite Higher-Than-Forecast GDP Figures
The Pound (GBP) is subdued this morning. While the UK’s latest GDP figures surprised to the upside a bleak UK economic outlook continues to temper GBP demand.
The Office for National Statistics (ONS) reported the UK economy expanded by 0.2% in the second quarter, in line with previous estimates.
But the latest GDP figures also saw growth in the first quarter revised up from 0.1% to 0.3%. While Year-on-year growth in 2022 was revised up from 4.1% to 4.3%.
However, the ongoing wave of UK economic pessimism looks to remain in place, with recession fears appearing to cap the Pound’s upside potential this morning.
Ruth Gregory, deputy chief economist at Capital Economics commented:
‘The final Q2 2023 GDP data release shows that the economy was a bit more resilient in the first half of this year than we previously thought. But other indicators suggest this is now fading. We still think that higher interest rates will trigger a mild recession involving a 0.5% fall in GDP in the coming quarter’.
Pound Euro Exchange Rate Forecast
Looking ahead to the start of next week, notable data may be thin on the ground. This may result in movement in the Pound Euro exchange rate being primarily driven by the finalised PMI releases from the UK and Eurozone.
The Eurozone’s manufacturing PMI looks to confirm that factory activity in the bloc edged lower in September which could limit demand for the Euro.
At the same time, an underwhelming manufacturing PMI from the UK could reinforce the UK’s recent economic gloom and pull the Pound lower.