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Euro to Pound Sterling Exchange Rate Rebounds from 2-Month-Lows Ahead of UK Inflation

Euro to Pound Exchange Rate Fluctuates as Investors Anticipate Key Data

Since markets opened this week, the Euro to Pound Sterling (EUR/GBP) exchange rate has seen mixed movement as investors anticipate major economic data and potential political developments due towards the end of the week.

EUR/GBP has trended with a downside bias since the beginning of the month. After opening this week at the level of 0.8899, EUR/GBP has trended lower and briefly touched on a two-month-low of 0.8873 on Tuesday morning.

However, amid a lack of reasons to keep buying the Pound (GBP) ahead of this week’s anticipated Brexit developments, the Euro to Pound exchange rate has rebounded from its weekly lows. At the time of writing EUR/GBP trended closer to the level of 0.8891.

Demand for the Euro (EUR) was supported slightly by Monday’s steady Eurozone inflation data, but the shared currency is unlikely to see much shift in direction until other key Eurozone data is published towards the end of the week.

Euro (EUR) Exchange Rates Little Affected by European Central Bank (ECB) Comments

The Euro’s outlook steadied slightly following last week’s European Central Bank (ECB) monetary policy decision, but since then nothing has notably impacted the shared currency’s movement.

Monday saw the publication of the Eurozone’s final August Consumer Price Index (CPI) inflation rate report, which generally met expectations.

Eurozone inflation steadily slowed as was projected earlier in the month. This supported the European Central Bank’s view that Eurozone inflation would slow slightly before remaining steady in the coming years.

It also supported the stance that US-EU trade tensions were not having a notable impact on Eurozone price pressures, which has been somewhat relieving to Euro investors.

The Euro’s movement was little changed on Tuesday amid a lack of fresh Eurozone data, and as the latest comments from European Central Bank President Mario Draghi were largely unrelated to Eurozone monetary policy.

Pound (GBP) Exchange Rate Investors Anticipate EU Summit

The Pound was a little weaker on Tuesday. Investors sold the British currency from its highs in profit-taking, following a week of more bullish performance on Brexit hopes.

While Brexit optimism has driven the Pound for most of the past week, the currency’s momentum has run dry and investors are again becoming concerned about the possibility that the UK and EU may not be able to agree to a Brexit deal by November.

UK and EU negotiators have shown confidence that a deal can be reached, but major obstacles remain not just abroad but domestically due to fissures within Britain’s ruling Conservative Party.

According to Jane Foley, FX Strategist from Rabobank:

‘Although November was cited as a potential date for a deal the reality is there is still a lot more to be discussed and there is a huge gap between the warring factions of the Tory party,’

With analysts speculating that major progress could be made on Brexit negotiations at this week’s EU summit, the Pound’s movement has been limited for now.

UK Inflation and Brexit News to Influence Euro to Pound (EUR/GBP) Exchange Rate Outlook

Wednesday’s session is much more likely to be influential to Euro to Pound (EUR/GBP) exchange rate outlook, as major UK data will be published and the day’s Eurozone news may also prove influential.

The day’s main event will be Britain’s August Consumer Price Index (CPI) inflation rate report. UK inflation is forecast to have accelerated from 0.0% to 0.5% month-on-month and have slipped slightly from 2.5% to 2.4% year-on-year.

If UK inflation falls short of forecasts, it could make investors more concerned about the UK price pressure outlook. This could dampen Bank of England (BoE) interest rate hike bets and worsen Brexit jitters.

Wednesday will also see the publication of the Eurozone’s July construction output results, and the Euro could be influenced if the day’s speech from European Central Bank (ECB) President Mario Draghi regards monetary policy in some way.

Of course, if there are any notable developments in the Brexit process these ecostats could all take a backseat.

Regardless of UK data, the biggest potential for Euro to Pound (EUR/GBP) exchange rate movement this week will be the EU summit on Thursday, when analysts predict there could be major developments in Brexit negotiations.