Pound euro (GBP/EUR) wavers despite cooling US inflation
(Updated 16:35, 28/06/24) The pound euro (GBP/EUR) exchange rate is trading without a clear direction this afternoon following the latest US inflation data.
A lack of further releases within both the UK and the Eurozone saw markets look towards the high-impact release, which typically imbues the currency market with volatile trading conditions.
The latest core PCE price index was released in the US this afternoon and confirmed that the American inflation cooled to 2.6% in May. As the Federal Reserve’s preferred gauge of inflation, confirmation that price pressures in the US are gradually easing towards the central bank’s 2% target rate prompted speculations over whether the Fed would begin to loosen its monetary policy sooner than previously anticipated.
James McCann, Deputy Chief Economist at abrdn, said:
‘Following an alarming acceleration at the start of the year we continue to see signs that inflation in cooling again, which will be a huge relief for the Fed and financial markets. This month’s data showed a tepid increase in underlying price pressures, with this weakness spread across the inflation basket. Alongside signs of easing activity rates these figures look consistent with the soft landing the Fed has been hoping for.’
However, much like the morning’s British GDP release, the high-impact data had little impact on the pound (GBP) and the euro (EUR) alike, failing to prompt any significant movement in the currency pairing.
Elsewhere, an increasing appetite for risk saw investors favouring riskier assets, leaving the pound euro exchange rate largely flat as the session drew to a close.
At the time of writing, GBP/EUR is trading at €1.1799, virtually unchanged from this morning’s opening levels.
Original article continues below:
Pound euro (GBP/EUR) exchange rate edges higher following better-than-forecast UK GDP
The pound euro (GBP/EUR) exchange rate is trending higher this morning as the UK’s latest GDP figures surprised to the upside.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1821, up approximately 0.2% from this morning’s opening rate.
Pound (GBP) gains ground amid economic recovery hopes
The pound (GBP) is edging higher this morning following a better-than-forecast GDP print in the UK.
The UK economy grew at a faster pace than projected throughout the first quarter. The release of the UK’s finalised growth figures this morning marginally surpassed market forecasts of 0.6% growth, instead showing that the UK economy grew by 0.7% between January and March.
Paul Dales, Chief UK Economist at Capital Economics, suggested that today’s data may serve to lift the UK’s annual growth expectations, commenting:
‘The larger rise in GDP in Q1 was mainly due to upward revisions to consumer spending and the contribution from net trade more than offsetting downward revisions to government spending and residential investment.
The revision suggests that real GDP growth in 2024 as a whole may be more likely to come in a bit above our existing forecast of 1.0%.’
After briefly dipping into a shallow technical recession last winter, the surprise uptick is positive news for the UK economy, which may see GBP attract investor support as the European trading session progresses.
Euro (EUR) pressured by rising German unemployment
The euro (EUR) facing headwinds this morning following the latest German jobs data.
German unemployment unexpectedly rose for the first time in sixth months in June, ticking up to 6%, rather than holding steady at 5.9% in alignment with market projections.
Reaching its highest level since May 2021, economists have expressed concerns over how Germany’s manufacturing slump now weighs on the labour market.
Andrea Nahles, Federal Minster of Labour and Social Affairs in Germany, said:
‘The weakness in the labour market continues.’
Meanwhile, EUR investors may remain reluctant to place any aggressive bets on the common currency ahead of France’s looming election. With the first round of the French legislative due to take place on Sunday, EUR sentiment will likely remain sour in the interim.
Pound euro exchange rate forecast: US data in spotlight
Looking ahead, a lack of market moving releases from the UK and the Eurozone as the session progresses may pull US inflation data into focus this afternoon.
The high-impact core PCE price index is due for release in the US this afternoon. The index is forecast to edge slightly lower in May, to 2.6%, cooling from April’s reading of 2.8%.
As the Federal Reserve’s preferred gauge of inflation, markets will be particularly eager to assess the extent to which personal consumption expenditures price pressures have eased. Any notable declines may see Fed interest rate cut bets pulled into focus, with shifting Fed monetary policy expectations likely to drive market risk dynamics.
In turn, any bullish trade stemming from the weighty release may lift the increasingly risk-sensitive pound against its rivals, while a cautious sentiment may boost the safe-haven euro.
Alternatively, signs of stubborn US inflation could see a strengthening US dollar (USD) weaken the euro, due to the currency pairing’s positive trading correlation.