Pound Euro (GBP/EUR) Exchange Rate Weakens amid Sharp Cooldown in UK Inflation
The Pound Euro (GBP/EUR) exchange rate is on the back foot this morning, following a greater-than-expected drop in UK Inflation.
At the time of writing, GBP/EUR is trading at €1.550, down roughly 0.4% from this morning’s opening rate.
Pound (GBP) Plummets as Inflation Cools
The Pound (GBP) is struggling against most of its peers today, following the release of weaker-than-expected UK inflation figures this morning.
Today’s consumer price index revealed that headline inflation, predicted to fall from 4.6% in October to 4.4% for November, plunged to 3.9%. Meanwhile core inflation followed suit, plummeting from 5.7% to 5.1% last month, versus forecasts for a more modest fall to 5.6%.
November’s CPI figures attributed the sharp deceleration of inflation to a drop in fuel prices, while falling prices for food and household goods also contributed.
A kneejerk reaction to the data sent the Pound lower as it revived speculation that the Bank of England (BoE) will begin cutting interest rates next year.
James Smith, developed markets economist at ING, said:
‘UK inflation has come in much lower than expected for November and markets are now pricing a whopping 140bp of cuts next year. That’s maybe pushing it, but investors are right to be thinking about several cuts next year, despite the Bank of England’s recent pushback.
‘Interestingly, this data has also seen investors reassess where the BoE stands relative to the Fed and European Central Bank. Up until now, markets had been expecting both of the latter to be much more aggressive than the BoE, but that narrative seems to be fading.’
Euro (EUR) Mixed following German Consumer Confidence
The Euro (EUR), although up against the Pound, is fluctuating against most of its other peers this morning.
This comes despite the release of the latest German consumer confidence levels showing a greater than expected increase in household morale, with the index rising to -25.1 heading into January 2024, it’s highest levels since August.
This is likely to help the single currency shake off some of yesterday’s losses, as the latest consumer price index for the Eurozone confirmed a sharp cooldown in inflation, dampening European Central Bank (ECB) interest rate expectations.
Pound Euro Exchange Rate Forecast: Retail Sales to Buoy Sterling?
Looking ahead, the next notable data release for the Pound will be on Friday, which will see the release of UK retail sales and the UK’s finalised GDP figures for the third quarter.
UK retail sales previously came in at -0.3%, however they are forecast to rise, with markets predicting a sales growth will have risen by 0.4%. Should retail sales in the UK increase as expected, this could aid the Pound right before Christmas.
Turning to the Euro, a lack of any new market moving data may leave the single currency trading on market mood alone before the holidays, possibly leaving the European currency vulnerable to any new ECB comments, or other external factors.