Pound Euro (GBP/EUR) Exchange Rate Attempts Recovery on UK Inflation
The Pound Euro (GBP/EUR) exchange rate is firming this morning, following a sharp descent from Monday’s highs yesterday. Pressuring the Pound (GBP) on Tuesday was the release of employment data which suggested a slowdown in the UK economy.
At the time of writing, GBP/EUR is trading at €1.1535, having climbed by 0.14% in the past day.
Pound (GBP) Buoyed by Inflation Data
The Pound is climbing from yesterday’s lows this morning, as UK inflation data printed above forecasts at 6.7%.
The currency fell sharply on Tuesday as employment vacancies contracted and average earnings dropped. A loosening in the UK’s labour market indicates that demand for workers is low, reflecting employers’ financial plight amid high interest rates and persistent inflation.
The data suggested that the Bank of England (BoE) may be hesitant to raise interest rates at its upcoming policy meeting, given the evident effect of monetary policy tightening on the economy – of which the jobs market is an indicator.
Yet today’s hotter-than-forecast inflation reading leads to speculation that the BoE may be compelled to act, if price pressures remain stubborn. Forecasts are mixed, as James Smith, of ING bank reports:
‘UK inflation has come in a little higher than expected, but given the surprise isn’t huge we don’t think there’s enough here to tempt the Bank of England into resuming its rate hike cycle in early November.’
Meanwhile, analysts at the Financial Times assert the data will maintain pressure on the Bank of England to hold firm in its efforts to curb price growth.
Euro (EUR) Resists Headwinds, Investors Cling to Hawkish ECB
The Euro (EUR) is trading sideways today, finding moderate strength in hopes for a hawkish European Central Bank (ECB) as well as positive German sentiment data.
Germany’s ZEW economic sentiment index printed at -1.1 on Tuesday rather than the –9.3 forecast. This represents a fair increase from last month’s reading of –11.4, marking the highest reading since April.
Meanwhile, ECB President Christine Lagarde has inspired tailwinds recently with observations that underlying inflation in the bloc is strong, implying that the central bank will maintain restrictive monetary policy conditions.
Her comments at the meeting of the International Monetary Fund (IMF) were balanced, however, cautioning against excess optimism. Lagarde remarked:
‘It’s not a question of being hawkish or dovish, but it requires us at this point in time to be patient, as supply shocks reverse and new shocks arrive, and be attentive to ensure that inflation expectations remain anchored when inflation is still too high.’
Today, the Eurozone’s finalised inflation data for September printed as expected: 0.9% below August’s annualised reading. The release contributed toward EUR stability, confirming that the bloc’s economy is performing as expected, in line with central bank expectations.
GBP/EUR Exchange Rate Forecast: US Data to Inform EUR Movement?
The Pound Euro exchange rate could climb higher still this afternoon, if speeches from Federal Reserve officials buoy the US Dollar (USD), pressuring the negatively correlated Euro.
A lack of further data from both the UK and the bloc leaves GBP/EUR to trade on external factors. In addition to US data, risk sentiment could alter the trajectory of the exchange rate as conflict in the Middle East deepens.
As Palestinian citizens in Gaza suffer overwhelming loss of life, the international community is scrutinising the structures that uphold hostility between Israel and Palestine. The fallout following the decades-old conflict in the region has potential to trigger significant and long-lasting geopolitical tensions.