Pound Euro (GBP/EUR) Exchange Rate Struggles as Markets Digest UK CPI
The Pound Euro (GBP/EUR) exchange rate briefly touched a fresh six-month low earlier this morning before managing to bounce back, as Sterling remains weaker in the wake of the UK’s latest inflation figures.
At the time of writing, GBP/EUR is trading at around €1.1425, marginally down on the day but up from an earlier low of €1.1407.
Pound (GBP) Continues to Flounder after UK Inflation Cooled
The Pound (GBP) remains on the back foot today after the UK’s October consumer price index, published yesterday, sparked a GBP selloff.
The latest CPI figures revealed that both headline and core inflation cooled more than forecast, which led markets to significantly pare back bets on another Bank of England (BoE) interest rate hike. This, in turn, saw Sterling take a tumble.
The UK currency remains subdued today, with GBP/EUR briefly sliding to a fresh six-month low before regaining some lost ground.
Comments from BoE policymaker Megan Greene may have helped to stem Sterling’s losses. In an interview with Bloomberg TV, Greene said:
‘I think there are still reasons to worry about the persistence of inflation in the UK.’
Recent UK economic data on inflation and the labor market is "good news," says new Bank of England rate-setter Megan Greene
But she identifies some "reasons to worry" about the persistence of UK inflation https://t.co/kJ5epHpsrN pic.twitter.com/SUvoriirYE
— Bloomberg TV (@BloombergTV) November 16, 2023
Greene also highlighted that services inflation was proving sticky and that wage growth remained high, and warned that markets ‘haven’t really clocked on’ to the fact that interest rates will need to remain restrictive for a long time.
These remarks may have put a floor under the Pound. But as Greene is known as one of the more hawkish voices at the BoE – having voted against the grain for a rate hike earlier this month – markets aren’t responding dramatically to her comments.
Euro (EUR) Muted amid Lack of Data
Meanwhile, the Euro (EUR) is struggling to push higher against the weaker Pound today as a lack of Eurozone data leaves the currency rather subdued.
A cautious market mood seems to be lending the safer single currency some support, but ongoing worries about the Eurozone economy are keeping a lid on EUR.
Meanwhile, markets also believe that the European Central Bank (ECB) has finished raising interest rates. This seems to be offsetting EUR’s gains against GBP amid the pullback in BoE bets.
Pound Euro Exchange Rate Forecast: UK Sales to Help Sterling Recover?
Looking ahead, a lack of UK economic data today could leave the increasingly risk-sensitive Pound to trade on the market mood. Any improvement in risk appetite could send Sterling higher, while a shift to a more bearish tone could weigh on GBP/EUR.
The next key UK data release due out is the British retail sales report, which will be published tomorrow morning.
Economists expect to see a 0.3% recovery in UK sales growth last month, after a 0.9% contraction in September. If the latest data does reveal a rebound in domestic sales, the Pound could catch some bids.
However, if the figure prints below forecasts – as the previous reading did – then Sterling could face fresh selling pressure.