Pound euro (GBP/EUR) exchange rate muted following German inflation
(Updated 16:00, 29/05/24) The pound euro (GBP/EUR) exchange rate has continued to trade in a narrow range following the publication of Germany’s latest CPI data.
Inflation in the Eurozone’s largest economy increased as forecast this afternoon, rising from 2.2% to 2.4% in May.
However, despite the hotter-than-forecast inflation reading, the euro (EUR) has struggled to garner investor attention, likely due the common currency’s negative correlation with the rising US dollar (USD).
The pound (GBP) has continued to trade in a limited capacity this afternoon amid a further lack of UK data, and is likely to remain directionless amid a continued absence of economic data.
At the time of writing, GBP/EUR is trading at around €1.1753, virtually unchanged from today’s opening levels.
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Pound euro (GBP/EUR) exchange rate flat following German consumer confidence index
The pound euro (GBP/EUR) exchange rate is trapped in a narrow range this morning following the publication of Germany’s latest GFK consumer confidence index.
At the time of writing, GBP/EUR is trading at around €1.1772, virtually unchanged from this morning’s opening levels.
Euro (EUR) supported by consumer confidence
The euro (EUR) is managing to hold steady against the majority of its peers this morning as it is being bolstered by some forecast beating data from within the Eurozone.
Germany’s latest GFK consumer confidence index came in higher than expected in June, with the index rising from a previous reading of -24.0 to -20.9, ahead of market expectations of a more modest -22.5 reading.
Not only did the index surprise to the upside, but morale in the Eurozone’s largest economy reached a one year high.
However, as the index confirmed another negative reading, any potential EUR gains were ultimately capped.
Rolf Burkl, consumer expert at NIM, commented:
‘There still seems to be uncertainty among German consumers. This can be attributed to the lack of clear future prospects in the country, which undermines planning certainty when making purchases. People will have to regain this certainty before they are willing to invest their growing purchasing power in larger purchases.’
Pound (GBP) rangebound amid lack of data
The pound (GBP) is trading sideways against the majority of its peers this morning as a lack of UK data has seen the pound struggle to find a clear trajectory.
However, Sterling continues to be supported by scaled back Bank of England (BoE) interest rate cut expectations.
There is now a ‘zero chance’ of a June rate cut, after the BoE suspended all public appearances until after the UK general election in July, markets have firmly priced in the first BoE rate cut to arrive in August, ultimately supporting Sterling.
Michael Saunders, former member of the BoE’s Monetary Policy Committee and Senior Economist at Oxford Economics, commented:
‘They themselves [the MPC] wouldn’t want to be a cause of volatility. The MPC would be especially reluctant to do a surprise interest rate change during an election campaign. In practice, a June rate cut is already ruled out by inflation figures.’
Pound euro exchange rate forecast: Eurozone inflation to underpin the Euro?
Looking ahead, the primary driver of movement for the pound euro exchange rate this week will likely be the publication of the Eurozone’s year-on-year inflation figures for May, scheduled for release on Friday.
Both headline and core inflation are expected to have accelerated, with headline inflation forecast to rise from 2.4% to 2.5% whilst core inflation is expected to increase from 2.7% to 2.8%, signs of sticky inflation within the Eurozone will likely offer the single currency some support at the end of this week.
Turning to the pound, a significant lack of UK data this week will likely see GBP continue to trade without a clear direction and in line with risk dynamics.
Should markets opt for riskier assets, the pound could firm, however should the mood sour, Sterling sentiment could weaken.