Pound Euro (GBP/EUR) exchange rate retreats from multi-month high

Pound Euro (GBP/EUR) exchange rate slumps as UK inflation misses forecasts

The Pound Euro (GBP/EUR) exchange rate retreated from an eighteen-month high this morning, as cooler-than-expected UK inflation boosts Bank of England (BoE) interest rate cut bets.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1721, down approximately 0.3% from this morning’s opening rate.

Pound (GBP) plummets amid rising BoE rate cuts

The Pound (GBP) is losing ground this morning following the release of the latest UK inflation data.

Headline inflation unexpectedly held at 4% in January’s year-on-year reading, rather than warming to 4.2% as forecast. Similarly, core inflation remained unchanged at 5.1%, missing forecasts of 5.2%.

Today’s milder-than-anticipated CPI reading reinforces market speculations that the BoE’s currently restrictive stance towards monetary policy will begin to shift going into the second quarter.

Martin Beck, Chief Economic Advisor at the EY Item Club

‘The EY Item Club continues to think that CPI inflation should fall to, and perhaps even below, the Bank of England’s 2% target over the next few months. Overall, the latest inflation data should reassure the MPC that the time to start cutting interest rates is approaching. The EY Item Club continues to expect the first cut in bank rate in May.’

Market odds of a summer rate cut have skyrocketed from 40% to 70% following today’s data, likely to undermine Sterling throughout today’s European trading hours.

Euro (EUR) wavers following tepid ECB commentary

The Euro (EUR) is muted this morning following tepid commentary from European Central Bank (ECB) policymakers.

The ECB continues to highlight its data-driven approach while assessing when the first interest rate cuts can safely be introduced.

However, senior policymaker’s omissions of any specific timeframe regarding when policy may actually loosen continues to stifle any significant EUR movement.

Vice President Luis de Guindos said in a speech this morning:

‘While we are heading in the right direction, we must not get ahead of ourselves. It will take some more time before we have the necessary information to confirm that inflation is sustainably returning to our 2% target.’

EUR sentiment may continue to sour as the session continues, as central bankers continue to offer unclear projections regarding upcoming monetary policy.

Pound Euro exchange rate forecast: UK GDP to dent Sterling?

Looking ahead, the UK’s latest GDP figures are due for release tomorrow. Economists expect another negative growth reading in the fourth quarter, at -0.1%. Should the data print in line with forecasts, this could reinforce concerns that the UK fell into a technical recession last year, with two consecutive quarters of negative growth.

This will likely place additional pressure on the central bank to enact looser monetary policy in the coming months, with surmounting speculations of a May interest rate cut denting the Pound.

Looking to the Eurozone, a speech from ECB President Christine Lagarde on Thursday morning could impact EUR exchange rates. While markets are currently placing their bets on a summer rate cut, any dovish commentary from Lagarde may serve to cement such speculations.

Yasmine Arasteh

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