Pound euro (GBP/EUR) exchange rate bolstered by sticky services inflation
The pound euro (GBP/EUR) exchange rate is edging higher this morning following the release of the UK’s latest consumer price index.
At the time of writing, GBP/EUR is trading at around €1.1855, up roughly 0.2% from this morning’s opening levels.
Pound (GBP) ticks up following UK CPI
The pound (GBP) is trending higher against the majority of its peers this morning following the publication of the UK’s latest inflation data.
Both headline and core inflation cooled as expected in May, with headline inflation falling from 2.3% back down to the Bank of England’s (BoE) 2% target, while core inflation eased from 3.9% down to 3.5%.
However, despite this Sterling is managing to gain ground due to signs of sticky services inflation. Inflation in the services sector printed above the BoE’s 5.3% prediction, coming in at 5.7%.
James Smith, Developed Markets Economist at ING, commented:
‘Indeed at 5.7%, it’s now 0.4 percentage points above the Bank’s forecast from the May Monetary Policy Report. That all but confirms the BoE will keep rates on hold tomorrow. But it doesn’t necessarily change the game for August’s meeting.’
With the chance of an interest rate cut below 5% for tomorrow’s policy decision, Sterling is enjoying some modest success as a result. In addition, sticky services inflation could mean that the BoE cuts rates fewer times over the next 12 months, and this also seems to be lifting the pound.
Euro (EUR) flat amid limited data
The euro (EUR) is trapped in a narrow range this morning as an absence of Eurozone data releases sees the common currency struggle to find a clear direction.
Additionally, amid ongoing political strife within the Eurozone particularly concerns around France’s snap election, EUR investors are somewhat subdued.
Also hobbling the single currency is a mixed market mood. As a safe-haven currency, uncertain trading conditions are further weighing on EUR exchange rates this morning.
Pound euro exchange rate forecast: BoE interest rate decision in focus
Looking ahead, the likely main catalyst of movement for the pound euro exchange rate for the remainder of the week will likely be the Bank of England’s upcoming interest rate decision, scheduled for tomorrow.
With no policy changes expected, GBP investors will likely look to the central bank’s forward guidance for any hints surrounding the future of monetary policy. Any signals that a rate cut is coming could dent GBP.
However, as the UK is in the run-up to a general election, the bank’s forward guidance will likely be limited.
Turning to the euro, Eurozone data is thin on Thursday which may leave the single currency vulnerable to shifts in market mood. As EUR is a safe-haven currency, any move towards upbeat trade could see the euro falter against its riskier peers.
The only data release of note will come in the form of the Eurozone’s latest flash PMIs, scheduled for release at the end of the week.
June’s data is forecast to report a modest uptick in activity. Will this be enough to support the common currency at the end of this week?