Pound Euro (GBP/EUR) Exchange Rate Subdued amid Rise in Eurozone Inflation
The Pound Euro (GBP/EUR) exchange rate is trapped in a narrow range this morning, even though Eurozone inflation rose sharply in December.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1596, roughly the same this morning’s opening rate.
Euro (EUR) Trading Sideways despite Climbing Inflation
The Euro (EUR) treading water this morning, despite the Eurozone’s latest consumer price index reporting the first uptick in inflation since April 2023.
The CPI showed that Eurozone inflation rose to 2.9% in December, jumping up from November’s two-year low of 2.4% and narrowly missing forecasts of 3%.
Meanwhile, core inflation reported a slight drop from 3.6% in November to 3.4% in December.
December’s leap in inflation will likely stoke European Central Bank (ECB) interest rate speculation, with questions of whether there will be rates cuts as early as spring at the forefront of the debate.
In an email ahead of Friday’s release, analysts at Rabobank predicted:
‘Markets currently anticipate that the ECB will cut the interest with almost 150 basis points [this year], but markets seem to be slowly walking back from the narrative of the ECB slashing interest rates to this extent. Still, a significant undershoot for Eurozone inflation could see this narrative become dominant again.’
While today’s uptick in inflation could support expectations that the ECB will wait longer before unwinding monetary policy, the below-forecast reading is stifling EUR’s upside.
Pound (GBP) Muted amid Lull in UK Data
The Pound (GBP) is subdued today as lack of fresh UK data leaves the currency trading without a clear direction.
The Pound is rangebound after ticking up against most of its peers yesterday, after the UK service PMI for December reported that activity in the sector had climbed to a six-month high.
However, as a lack of data continues to leave Sterling vulnerable to market sentiment, today’s anxious mood has undermined the increasingly risk-sensitive Pound.
Pound Euro Exchange Rate Forecast: Eurozone Data to Dent GBP/EUR?
Looking ahead, GBP/EUR may face selling pressure as we move into the second week of 2024.
Several data releases are expected on Monday that may impact the pairing, including the Eurozone’s latest retail sales for November.
Predictions that Eurozone retail sales expanded from 0.1% growth in October to 0.3% in November may lend the Euro some support, as it would represent the first time there have been two months of consecutive growth since September 2022.
German factory orders for November will also be released, which are anticipated to climb from -3.7% in October to 1% for this reading. With manufacturing being a key part of the German economy, this could see EUR climb.
Monday will also bring Germany’s balance of trade for November. Should the data show a positive expansion, this may also help bolster the Euro early next week.
Looking at the Pound, data will be thin on the ground as we move into the second week of 2024. GBP will be left to trade on market mood alone, with a gloomy atmosphere potentially denting Sterling.