Pound euro (GBP/EUR) exchange rate wavers despite weakened German outlook
The pound euro (GBP/EUR) exchange rate is trading without a clear direction this morning as markets brace for the UK’s upcoming inflation data.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1899, virtually unchanged from this morning’s opening rate.
Pound (GBP) fluctuates ahead of UK inflation data
The Pound (GBP) is largely subdued this morning amid a lack of fresh UK economic releases.
With macroeconomic data in short supply, news of cooling UK grocery inflation seemingly deters investor interest in the pound. Market research company Kantar have reported that grocery inflation has fallen close to a three-year low of 1.6%, ahead of the UK’s latest consumer price index, due for release tomorrow.
With markets expecting the vital CPI to print at 2% for a second consecutive month, holding steady on the Bank of England’s (BoE) target rate, speculation of an August interest rate cut is once again called into question. Amid sticky services inflation and continual wage growth, the likelihood of an August rate cut remains uncertain. The introduction of the UK’s newly elected Labour government may also have altered the rate-cutting timetable, according to some economists.
Chris Forgan, Portfolio Manager at Fidelity, noted:
‘Services inflation is still higher than the Bank of England would like, but we believe it will begin its rate cutting cycle before long, which should further stimulate economic activity.’
In the meantime, as markets await the UK’s vital CPI release, Sterling could remain on the backbench, as investors remain reluctant to place any aggressive bets on GBP.
Euro (EUR) stymied by worsening German outlook
The euro (EUR) is largely rangebound this morning despite a worse-than-forecast economic outlook in the Eurozone’s largest economy.
The ZEW economic sentiment indicator for Germany fell to 41.8 in July, slipping from a previous reading of 47.5 in June and missing market projections of a more modest decline to 42.5.
The index also fell to its lowest level in four months, pointing to a worsening outlook in the Eurozone’s largest economy, as exports continue to fall, alongside French political uncertainty and an unclear monetary policy path from the European Central Bank (ECB)
Elsewhere, the common currency continues losses continue to be cushioned by the US dollar’s (USD) recent weakness, due to its negative correlation with a weakened ‘greenback’.
Pound euro exchange rate forecast: inflation data in focus
Looking ahead, the UK’s latest inflation data is due for release tomorrow. Should the data print as forecast, signs that British inflation is steadily holding at the BoE’s target rate may see ramped up BoE rate cut bets hamper GBP exchange rates.
In addition to this, the Eurozone’s finalised inflation report is due for release. Forecast to ease to 2.5%, further disinflation across the Eurozone may see markets shifting their expectations of monetary unwinding during the third quarter, leaving the euro to trade in a wide range against its peers.