Pound euro (GBP/EUR) retreats from 22-month high as US inflation data rocks global markets

Pound euro (GBP/EUR) retreats amid shifting Fed rate cut bets

(Updated 16:05, 12/06/24) The pound euro (GBP/EUR) exchange rate is faltering this afternoon as markets continue to digest the latest set of US inflation data.

In May, American headline inflation unexpectedly eased to 3.3%, rather than holding steady for a second consecutive month at 3.4%. Additionally, core inflation cooled from April’s 3.6% to 3.4% in May, missing market projections of a more modest dip to 3.5%.

After a prolonged period of stubborn US inflation and robust economic data, the downward surprise saw the US dollar (USD) tumble against its rivals as markets began to speculate that Federal Reserve interest rate cuts may be closer than previously anticipated, prior to the central bank’s meeting this evening.

Analysts at ABN Amro commented:

‘The release is good news for the FOMC meeting taking place later today. These inflation figures are a step in the right direction, but policymakers will want to see a couple more months like this before deciding to make a move. Today’s development therefore supports our view that the Fed will cut rates by 25 bps in the September meeting.’

As markets dialled up their expectations of a September rate cut, a tumbling USD lifted the euro (EUR), due to the currency pairing’s negative trading relationship.

Meanwhile, a bullish market sentiment lifted Sterling against some of its safe-haven rivals, while sinking it against its more acutely risk-sensitive peers. However, the increasingly risk-sensitive pound (GBP) was unable to offset EUR’s upside, as the ‘greenback’ continued to tumble through the end of the session.

Looking ahead, could waning industrial production in the Eurozone see the single currency relinquish the day’s gains?

At the time of writing, GBP/EUR is trading at €1.1834, down approximately 0.2% from this mornings’ opening levels.

Original article continues below:

Pound euro (GBP/EUR) exchange rate fluctuates as UK economy stalls

The pound euro (GBP/EUR) exchange rate is largely subdued this morning despite a weak batch of UK GDP data.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1864, virtually unchanged from this morning’s opening rate.

Pound (GBP) wavers as UK economy flatlines

The pound (GBP) is trading without a clear direction this morning following the UK’s latest GDP data.

The British economy stalled in April as forecast, retreating from a 0.4% expansion in March and slumping to its weakest economic performance in four months.

Hailey Low, Associate Economist at the National Institute of Economic and Social Research, commented:

‘Today’s subdued GDP figures signal that the UK remains fragile on its route to a sustained economic recovery. However, the broader perspective remains an economy grappling with stagnation as low productivity and high economic inactivity curtails growth potential.’

However, given the volatile nature that monthly GDP data can often herald, Sterling appears mostly unmoved by April’s lacklustre economic growth. While investors may appear slightly hesitant to place any aggressive bets on the pound, deferred Bank of England (BoE) interest rate cut speculations continue to cushion GBP’s potential losses.

Investors and analysts alike continue to deliberate over the likelihood of decreased monetary unwinding through the latter part of the year, as political uncertainty and shifting price pressures casts a shadow over GBP exchange rates.

Euro (EUR) subdued amid sticky German inflation

The euro (EUR) is holding steady this morning following the latest batch of German inflation data.

Germany’s finalised headline inflation rate warmed as forecast to 2.4% in May, rising for the first time in five months amid higher services and food costs. However, markets appear largely unmoved by the inflationary increase from April’s three-year low of 2.2%, with EUR struggling to garner investor interest despite signs of stubborn inflation in the Eurozone’s largest economy.

Ruth Brand, President of the Federal Statistical Office, noted:

‘The inflation rate is slightly up again, mainly due to the continued increase in service prices. By contrast, energy and food prices have had a dampening effect on overall inflation since the beginning of the year.’

Coming shortly after the European Central Bank’s (ECB) first interest rate cut since 2019 last week, a sticky last mile towards the central bank’s 2% target may see shifting ECB rate cut bets drive the common currency as the session progresses.

Pound euro exchange rate forecast: US data in focus

Looking ahead, the Federal Reserve’s latest interest rate decision is due for release this evening, shortly after the latest US inflation data. Due to the market-moving nature of weighty US releases, the pound euro exchange rate may face notable volatility upon such releases. Should the US dollar (USD) strengthen upon any hawkish Fed rhetoric, the euro will likely sink due to the currency pairing’s negative trading correlation.

Alternatively, should the data spark any bullish trade, the increasingly risk-sensitive pound may edge higher against its safe-haven peers.

Yasmine Arasteh

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