Euro Pound Exchange Rate Shoots Up as UK Struggles with Coronavirus Infections
The Euro (EUR) is trading high against the Pound (GBP) this afternoon as UK Covid cases reach a seventeen-day high. Yesterday’s UK CPI failed to meet expectations, extending Sterling’s downside.
At the time of writing, EUR/GBP is trading at £0.8548, up 0.4% from today’s opening levels.
Pound (GBP) Pressured by Rising Covid Cases, Softer CPI
The Pound is sliding steeply against the Euro this afternoon as a lack of UK data leaves Sterling open to losses. GBP investors began the day in a bearish mood following yesterday’s weak inflation rate: CPI missed expectations of 2.3%, contracting on last month’s growth.
The data, while disappointing, left room for optimism – according to Samuel Tombs, chief UK economist at Pantheon Macroeconomics:
‘July’s decline in CPI inflation is attributable to the sharp increase in prices a year ago… Looking ahead, the headline rate remains on course to rise sharply.’
However, Pound downside was extended throughout today’s session by news of rising coronavirus cases within the UK. Figures show that, over the last seven days, confirmed cases were up by 14,891 (7.6%), deaths were up by 48 (7.9%) and hospitalisations were up by 232 (4.3%).
In addition to this, a study by the University of Oxford and the Office for National Statistics (ONS) revealed overnight that the Pfizer/BioNTech and AstraZeneca jabs are less effective against the Delta variant. For the UK and other countries with high vaccination rates, the news comes as a blow.
According to Simon Clarke, an associate professor in cellular microbiology at the University of Reading, ‘the data sets all show how the delta variant has blunted the effectiveness of both the Pfizer and AstraZeneca jabs.’
Euro (EUR) Sweeps Up on High Inflation, USD Uncertainty
The consumer price inflation rate in the Euro area was confirmed at 2.2% year-on-year in July 2021, the highest since October 2018. Price increases reflected a low base year due to the pandemic, and have been supported by a pickup in demand and activity following the reopening of the bloc’s economy.
Sentiment may have been marred slightly by annual core inflation falling, in comparison, from 0.9 to 0.7: overall, however, the data was positive, demonstrating growth in energy, food, tobacco and alcohol, and services.
The Euro also benefits from uncertainty amongst USD investors. The US Dollar faces headwinds as seemingly-hawkish FOMC minutes betray ambiguity on interest rate hikes, revealing discord amongst policymakers over monetary policy.
As a result of the strong negative correlation between EUR and USD, the Euro benefits from any downside in the ‘Greenback’.
EUR/GBP Exchange Rate Forecast: Euro to Fall on Contraction in German PPI?
Looking to tomorrow, data from Germany and the UK is likely to drive movement in the Euro Pound exchange rate, alongside any political or coronavirus developments.
If German PPI data shows a contraction, as expected, the Euro is likely to take a hit. A decrease in production prices could suggest that inflation was transitory, removing pressure upon the European Central Bank to alter monetary policy.
Meanwhile, an increase in retail sales could cause the Pound to climb; although consensus estimates don’t look promising.