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Euro Pound (EUR/GBP) Exchange Rate Dips on Uncertain Outlook for Eurozone Economy

EUR/GBP Exchange Rate Falls Despite Rising Eurozone Inflation

The Euro Pound exchange rate fell by -0.2% today, with the pairing currently fluctuating around £0.85.

EUR struggled today despite the Eurozone’s consumer price index for May beating forecasts in May and rising by 1% year-on-year.

The latest month-on-month gauge, however, confirmed consensus at 0.2%.

Analysts at Reuters commented on the data:

‘A sharp spike in energy prices and more expensive services boosted euro zone consumer inflation in May as expected … taking the rate of price growth just above the European Central Banks target.’

However, the single currency’s gains have been limited by a strong US Dollar following hawkish comments from the US Federal Reserve.

Ireland’s Central Bank Governor, Gabriel Makhlouf, also remarked that Ireland’s economic recovery would be ‘bumpy and uneven’.

As a result, EUR investors have become more cautious about the outlook for the Eurozone’s economy, as the Delta Covid-19 variant dampens confidence in the bloc’s ability to further ease lockdown restrictions.

Pound (GBP) Exchange Rate Edges Higher as UK Inflation Leaps Above Forecasts

The Pound (GBP) rose today as the outlook for the UK remains relatively positive, despite the Government’s announcement of a delay to easing lockdown restrictions this month.

GBP traders are however optimistic that the UK economy could recover in the next few months, with Friday’s retail data expected to show a modest improvement.

However, rising cases of the Delta variant of Covid-19 are causing some concern for the UK economy.

The latest UK inflation gauge, however, leapt above forecasts and exceeded the Bank of England’s (BoE) target of 2%.

James Smith, the developed markets economist at ING, commented on the data:

‘UK core inflation leaped to 2% in May, wildly surpassing expectations and marks a considerable jump from 1.3% in April. While an element of this is down to base effects – though more so on the energy side – given the annual comparison compares to the depths of the pandemic, that’s only really part of the story here.’

But with the UK economy facing a high degree of uncertainty in the threat of a possible third-wave of the coronavirus, GBP investors are remaining largely cautious.

EUR/GBP Exchange Rate Forecast: UK Retail Data in Focus

Euro (EUR) investors will be awaiting tomorrow’s release of the latest German producer price index for May.

Any improvement in the outlook for the Eurozone’s largest economy would be EUR-positive.

Pound (GBP) investors will monitor the latest UK retail sales data for May.

If the outlook for the UK’s retail sector improves, then we could see the Pound Euro exchange rate head higher.

However, rising cases of the Delta Covid-19 variant could weaken the Pound as the prospect of a possible third-wave would weigh on confidence in the nation’s economy.