Pound euro (GBP/EUR) exchange rate rebounds following German CPI
(Updated 16:45, 30/09/24) The pound euro (GBP/EUR) exchange rate leapt higher this afternoon, having softened at the start of the European session, after cooling German inflation boosted bets on another European Central Bank (ECB) interest rate cut.
The pound (GBP) had initially struggled against the euro (EUR) in the wake of the UK’s latest GDP figures. The finalised results showed that the British economy grew less than initially predicted in the second quarter.
However, GBP/EUR rebounded strongly after Germany published its latest consumer price index. Inflation in the Eurozone’s largest economy cooled more than expected in September, dipping from 1.9% to 1.6% – its lowest level since February 2021.
Following weaker-than-forecast Spanish and French inflation last week, the data added to evidence of easing price pressures across the Eurozone. This in turn fuelled bets on another rate cut from the ECB in October.
At the time of writing, GBP/EUR is trading at €1.2024, up 0.4% on the day and having briefly touched a fresh 29-month high of €1.2029.
Attention now turns to the CPI figures for the Eurozone as a whole, due out Tuesday morning. Economists expect inflation to ease from 2.2% to 1.9%. If so, this would be the first time inflation has fallen below the ECB’s target since June 2021.
The euro could plunge in response, particularly if Eurozone inflation also falls more than forecast. As a result, GBP/EUR could test new multi-month highs.
Original article continues below:
Pound euro (GBP/EUR) exchange rate muted as UK growth revised lower
The pound euro (GBP/EUR) exchange rate stumbled as today’s European session started, erasing its overnight gains, after the UK’s GDP figures for the second quarter were revised lower.
At the time of writing, GBP/EUR is trading at €1.1974, virtually unchanged from this morning’s opening level but down from an earlier high of €1.1996.
Pound (GBP) undermined by downward GDP revision
The pound (GBP) faced a setback this morning after the UK’s final GDP growth rate for the second quarter was revised lower.
The latest data from the Office for National Statistics (ONS) showed that the British economy grew 0.5% in the three months from April to June, down from an earlier estimate of 0.6% and slower than the previous quarter’s 0.7% growth.
This softer-than-expected result saw Sterling falter this morning. Overnight, an upbeat market mood had lifted the increasingly risk-sensitive pound against the safer euro (EUR). This morning, GBP relinquished those gains.
However, as 0.5% growth still represents a decent recovery from the mild recession at the end of 2023, the pound’s losses look limited so far.
Euro (EUR) buoyed by weaker USD
Meanwhile, the euro is enjoying support this morning thanks to its strong negative correlation with a declining US dollar (USD).
USD exchange rates are on the back foot amid bets on another large 50bps interest rate cut from the Federal Reserve at its next meeting. This is boosting demand for EUR.
A risk-off mood this morning is also aiding the safer common currency.
Pound euro exchange rate forecast: cooling German inflation to drag on EUR?
Looking ahead, Germany’s preliminary consumer price index for September could see GBP/EUR bounce back this afternoon.
Economists expect inflation in the Eurozone’s largest economy to have slowed from 1.9% to 1.7% this month. However, last week both French and Spanish inflation slowed significantly more than forecast, so there is a chance that Germany’s CPI could also come in softer.
If the new data does show cooling German inflation, this could fuel bets that the European Central Bank (ECB) will press ahead with another interest rate cut at its October meeting. This in turn could weigh on the common currency.
ECB President Christine Lagarde is also due to deliver a speech later this afternoon. Any dovish comments could pile further pressure on the euro.
Meanwhile, UK data is thin on the ground over the next two days. Therefore, the increasingly risk-sensitive pound may be driven primarily by market risk appetite or domestic headlines. Could an upbeat mood support GBP?