Pound euro (GBP/EUR) exchange rate muted despite stagnating German sentiment
Article updated 15:37, 18/6/24:
The pound euro (GBP/EUR) exchange rate is remaining flat this afternoon, despite an underwhelming German ZEW economic sentiment index.
While the reading marked the eight consecutive increase in the index as it rose to 47.5 in June, up from May’s reading of 47.1, it printed significantly below market forecasts of a rise to 50.
Analysis of the data pointed to stagnation in sentiment across the Eurozone’s largest economy, which undermined the euro (EUR).
Professor Achim Wambach, ZEW President, commented:
‘Both the sentiment and the situation indicators stagnate. These developments must be interpreted in the context of a constant situation indicator for the eurozone as a whole. In contrast, the inflation expectations of the respondents increase, which is likely related to the inflation rate in May, which turned out higher than what was expected.’
By pointing to a stumble in economic optimism, the release served to weaken sentiment towards the common currency.
At the time of writing, GBP/EUR is trading at around €1.1824, showing little movement from today’s opening rates.
Original article continues below:
Pound euro exchange rate narrows as UK grocery inflation cools
The pound euro exchange rate is trading in a flat range this morning, amid news of falling UK grocery inflation.
At the time of writing, GBP/EUR is trading at around €1.1826, showing little movement from the morning’s opening levels.
Pound (GBP) pushed lower by falling grocery inflation
The pound (GBP) is under pressure this morning, following the release of the latest UK grocery inflation data.
Kantar, a market research firm, found that UK grocery inflation fell for the 16th consecutive month. The figure cooled from 2.4% in May down to a reading of 2.1% in June.
The firm found that prices are now falling in nearly a third of the grocery categories it tracks, such as butter and milk. This is a marked slowdown from figures just last year, such as the eye-watering rise of 17% in March 2023.
Fraser McKevitt, Head of Retail and Consumer Insight at Kantar Worldpanel, commented:
‘There are positive signs that many of us no longer feel the need to restrict our spending quite so much, with lower inflation helping to ease the pressure on people’s pockets. In May, we recorded the largest jump in the number of comfortable households since January 2023.’
This is setting the stage for a cool consumer price index reading, due tomorrow. With inflation likely to reach the Bank of England’s (BoE) target rate of 2%, investors are shifting away from Sterling.
Euro (EUR) quiet ahead of German data
The euro (EUR) is trading in a muted capacity thus far this morning, as investors await the latest German ZEW economic sentiment index.
Confidence about the Eurozone’s largest economy is forecast to have improved in June, with the index expected to rise to 50 from 47.1.
This could mark the eighth consecutive improvement in economic optimism in the Eurozone’s largest economy. Because of this, the euro may gain ground if the reading prints in line with expectations.
Pound euro exchange rate forecast: UK inflation in focus
Looking ahead for the pound, the latest UK consumer price index data is likely to be the focus for investors.
Headline inflation is forecast to have cooled to 2% in May, down from April’s reading of 2.3%. As this puts the rate at the Bank of England’s target rate, it may weigh heavily on the pound by prompting bets on interest rate cuts.
This then leads into the latest rate decision from the Bank of England. While the central bank is expected to keep rates unchanged, if inflation did cool to its remit of 2% the accompanying minutes may skew dovish.
However, due to a blackout period ahead of the UK general election, additional commentary from policymakers is unlikely. Because of this, investors may be hesitant to support Sterling as a rate cut at the next meeting seems increasingly likely.
For the euro meanwhile, data releases are relatively thin on the ground. This could prevent the common currency from finding a clear direction of trade in the short term.