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Euro to Pound Exchange Rate Over 7-Year High as UK Inflation Disappoints

The Euro has advanced against the Pound today to an exchange rate of 0.9107. This is comes as UK inflation figures continues to highlight the problems faced by the national economy.

  • EUR GBP rate rises to 0.9107 – GBP EUR rate slips to 1.0978
  • Euro up on German GDP stats – Q2 inflation forecast to rise
  • Pound dragged down by inflation woes – Lower real incomes remain likely
  • Further Euro Movement Possible on Eurozone GDP – GBP volatility could come on wage figures

In the Eurozone, the main focus has been on initial estimates for German GDP. This data, along with disappointing UK stats, have led to the Euro hitting its best exchange rate against the Pound since late 2009.

Euro Advances Despite Mixed German GDP Stats

Giving the Euro an early boost today, German Q2 GDP has been estimated higher at 2.1% on the year. On the other side, however, a quarterly dip to -0.1% has also been projected.

In addition to posting above-forecast growth, the predicted rise in German GDP has also been the best year-on-year increase seen since 2014. Further good news was that at an estimated 2.1%, German GDP would be at its highest level in three years.

Giving a cautious summary of the news was ING economist Carsten Brzeski;

‘There is very little reason to fear a sudden end to the current performance, even though some kind of slowdown from current growth rates looks almost inevitable’.

Pound Drops on UK Inflation Upset

Daily UK inflation figures have unsettled traders, leading to a Pound devaluation. On the year, UK inflation has reprinted at 2.6%, while a slight monthly dip to -0.1% has also been recorded.

Problematically, inflation remaining high means that the UK will continue to struggle with real incomes being depleted, with wage growth remaining below the pace of inflation.

Commenting on the data was Ian Kernohan, Royal London Asset Management economist, who said;

‘While there is still some residual impact of Sterling devaluation to feed through, with underlying inflationary pressures low, we think that [the inflation rate] is close to topping out for the immediate future.

In their latest inflation report, the Bank of England forecast inflation to peak at 3% in the autumn, and will be happy to keep interest rates on hold as a result’.

 Euro to Pound Forecast: Further EUR Gains Possible on GDP Data

Following today’s German GDP estimates, the Euro could also be moved against the Pound by Wednesday’s Eurozone-wide Q2 GDP figures.

Unlike the German results, these will be second estimates, representing a figure close to the actual final reading for the second quarter.

Predictions are for rising GDP on both the quarter and the year; such results could trigger a Euro to Pound advance. Higher GDP across the Eurozone would raise the chances of a European Central Bank (ECB) interest rate hike in the future, as it would indicate greater economic resilience.

Today’s UK inflation rate figures are likely to remain in focus going into Wednesday, when earnings and unemployment figures come out.

If earnings slow in June, then the Pound could tumble against the Euro. This is because such a development would worsen the current wage squeeze felt by UK consumers.

A converse rise in wage growth is not considered likely, given that high numbers of applicants for new jobs have lowered the incentive for companies to increase salaries.

Unemployment is tipped to remain at 4.5%; a surprise rise may push the Pound into a prolonged slump against the Euro.

Current Interbank EUR GBP Exchange Rates

At the time of writing, the Euro to Pound (EUR GBP) exchange rate was trading at 0.9107 and the Pound to Euro (GBP EUR) exchange rate was trading at 1.0978.