Pound Euro exchange rate rangebound as German inflation prints as expected

Pound Euro (GBP/EUR) exchange rate muted as  German inflation cools

The Pound Euro (GBP/EUR) exchange rate is trapped in a narrow range this morning after the latest German inflation data printed in line with expectations.

At the time of writing, GBP/EUR is trading at €1.1712, virtually unchanged from this morning’s opening rate.

Euro (EUR) flat on easing German inflation

The Euro (EUR) is trading sideways this morning as Germany’s finalised inflation data for January was released earlier today.

Inflation in the Eurozone’s largest economy was confirmed to have cooled from 3.7% to 2.9%.

Driven by a sharp fall in energy prices following the introduction of a higher carbon price, January’s figure printed at the lowest level since June 2021.

Claus Vistesen, Chief Eurozone Economist at Pantheon Macroeconomics, commented:

‘Overall, energy prices across key components remained relatively sticky at the start of the year. This is especially true for gas and electricity, considering the sharp decline in wholesale gas prices through 2023… We continue to see downside risks for prices in these components, based on the current trend in market prices.’

The release has stoked further European Central Bank (ECB) interest rate cut speculation, as inflation edges closer to the central banks 2% target.

Pound (GBP) subdued on latest BoE comments

The Pound (GBP) is also treading water this morning, as markets digest comments from a Bank of England (BoE) policymaker.

Discussing his interest rate vote last week, BoE policy maker Jonathan Haskel explained his decision was ‘finely balanced’, however that he still had real concerns over inflation.

As one of the two Monetary Policy Members (MPC) who voted for a rate hike last week, Haskel signalled that he could change his mind should inflationary pressures ease.

Haskel commented:

‘The signs that we’ve seen thus far are encouraging. I don’t think we’ve seen quite enough signs yet. But if we accumulate more evidence on persistence, then by the very logic I’ve just set out, I’d be happy to change my vote… I’m not going to apologise for banging on about persistence because I think we’re right to.’

Pound Euro exchange rate forecast: UK GDP to sink the Pound?

Looking ahead, the primary catalyst of movement in the Pound euro exchange rate next week is likely to be the release of the UK’s preliminary GDP figure for the fourth quarter of 2023.

The figures may show that the UK slipped into a recession in the second half of last year, which could place significant pressure on Sterling.

Before that, Wednesday will bring the latest UK inflation data. Headline inflation is forecast to rise in January, Will this dampening BoE interest rate cut expectations and propel the Pound higher?

Turing to the Euro, on Tuesday the ZEW economic sentiment for Germany will be published. Will another improvement in morale this month lend support to the Euro?

Sarah Ebrahem

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