Pound Euro (GBP/EUR) exchange rate volatile amid sticky Eurozone inflation

Pound Euro (GBP/EUR) exchange rate fluctuates despite stubborn Eurozone inflation

The Pound Euro (GBP/EUR) exchange rate is moving without a clear direction this morning despite both core and headline inflation beating estimates in the Euro bloc.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1686, virtually unchanged from this morning’s opening rate.

Euro (EUR) wobbles despite stubborn inflation

The Euro (EUR) is volatile this morning as Eurozone inflation prints warmer-than-forecast.

Headline inflation fell to 2.6% in February’s annualised report, rather than easing to 2.5% as expected. As the session continues, stickier-than-expected Eurozone inflation could serve to quell market speculations that the European Central Bank (ECB) will be enact hasty monetary loosening in April, with pared interest rate cut bets potentially lifting the common currency.

The data also underpins the central bank’s notion that interest rates should remain ‘higher for longer’ in order to curb stubborn inflation, aligning with policymaker’s data-driven approach towards rates reductions.

Joshua Mahony, Chief Market Analyst at Scope Markets, noted:

‘A 0.6% gain for the month of February alone does dent hopes of a sharp decline back down to target in the coming months, feeding off the back of yesterday’s concerning 0.8% reading out of France.

With both headline and core inflation coming in above estimates, traders will be keeping a close eye out for any change in stance from the ECB at Thursday’s monetary policy announcement.’

Also serving to boost EUR sentiment this morning is the Euro bloc’s latest labour data. Unemployment dipped to 6.4% in January as forecast, hitting the lowest recorded jobless rate, with signs of a continually resilient labour market keeping the common currency afloat.

Pound (GBP) wavers amid economic pessimism

The Pound (GBP) is volatile this morning after a negative close to Thursday’s session, as high-impact UK data remains sparse.

The mildly impactful manufacturing PMI printed at 47.5 in February’s finalised report this morning, surpassing forecasts of 47.1.

Despite a marginal uptick, the data confirms factory activity remains deeply in contraction territory for an eleventh consecutive month, holding close to multi-month lows. As supply disruptions and higher shipping costs continue to stifle the UK manufacturing sector, output remained weak.

Rob Dobson, Director at S&P Global Market Intelligence, commented:

‘UK manufacturers faced challenging circumstances in February, as the ongoing impact of the Red Sea crisis delayed raw material deliveries, inflated purchase prices and impacted production capabilities.’

An uncertain market mood also serves to limit Sterling’s movements this morning, ahead of potentially market moving commentary from Bank of England (BoE) Chief Economist Huw Pill later today. The Pound could gain ground from any renewed push back against BoE interest rate cuts.


Pound Euro exchange rate forecast: BoE commentary to boost the Pound?

Coming up, BoE Chief Economist Huw Pill is due to speak at the Cardiff University’s Business School. While BoE policymakers have been reluctant to speak on the timing of potential rate cuts, any suggestion of when monetary loosening may occur could spark GBP volatility. Alternatively, Pill may strike hawkish and omit suggestion of interest rate cuts, potentially garnering investor support.

Otherwise, a lack of notable economic data releases for both the UK and Eurozone towards the end of the week could see the Pound Euro exchange rate left vulnerable to shifts in risk appetite. Developing geopolitical tensions and ongoing concerns of supply chain shocks in the Red Sea may continue to stoke global market volatility.

Upbeat trading conditions could see the increasingly risk-sensitive Pound strengthen against the safe-haven Euro, though gloomy trade may see EUR take precedent.

Yasmine Arasteh

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