Pound Euro (GBP/EUR) Exchange Rate Slides on Below-Forecast Inflation
Having rebounded in the first half of this week, the Pound Euro (GBP/EUR) exchange rate is sinking this morning following the release of the UK’s latest inflation figures. In the Eurozone, industrial production data is in focus, alongside the bloc’s latest trade balance.
At the time of writing, GBP/EUR is trading at €1.1481, easing from opening levels.
Pound (GBP) Incurs Inflation-Led Losses
The Pound (GBP) has lost ground against several peers this morning as October’s inflation data revealed that price pressures eased beyond expectations.
According to the Office for National Statistics, the inflation rate dropped to 4.6% in October 2023 from 6.7% in both September and August; short of forecasts of 4.8% and marking the lowest rate since October 2021.
Contributing to the drop are considered to be a recent reduction in energy prices as well as easing food inflation, with consumer prices also falling across transport, restaurants and hotels and clothing and footwear amongst other things.
The Bank of England (BoE)’s stance on inflation remains guarded, as the central bank’s chief economist Huw Pill said yesterday ‘we may be seeing more momentum and more persistence than really is ideal to get us back to the 2% inflation target.’
Following the release however, the BoE may be reassured that further interest rate hikes are unnecessary. If this is assumed to be the general consensus, Pound sentiment could weaken further.
Euro (EUR) Trades in a Mixed Range amid USD Weakness
The Euro (EUR) is benefitting this morning from relative weakness in the US Dollar (USD), to which it is negatively correlated.
The ‘Greenback’ remains depressed midweek following yesterday’s weaker-than-expected inflation release, while an absence of direction in US yields across the curve further weighs upon the currency.
German wholesale prices dropped unexpectedly as the European session opened, which may be hindering EUR gains somewhat. October’s figures decreased by 0.7% from a month earlier; moreover, industrial production in the Eurozone dropped by 1.1% in September.
The bloc’s trade surplus grew in September, but still printed considerably below forecasts at €10bn rather than €22.3bn. Exports from the region fell, but losses were balanced by a larger drop in import costs as the prices of key commodities such as natural gas stabilised.
Looking ahead, Euro exchange rates could waver as traders digest the latest data.
GBP/EUR Exchange Rate Forecast: US Data to Influence Direction?
This afternoon, the Pound Euro exchange rate is likely to be affected by key US data and the subsequent movement of the US Dollar, given the strong negative correlation between the ‘Greenback’ and the single currency.
The second half of today’s session will see the US release retail sales data as well as the latest producer price index. If producer prices continued to rise last month as consumer inflation stalled, USD investors may be encouraged by hopes of a hawkish Federal Reserve. This could boost the Dollar while potentially depressing the Euro.
Meanwhile, central bank dynamics as well as external factors could affect GBP/EUR. Any hawkish indications from the Bank of England would likely buoy Sterling, while risk-off sentiment may attract support to the comparatively safe-haven Euro.