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Euro Pound Exchange Rate Boosted as UK Inflation Data Exceeds Expectations

Euro Pound (EUR/GBP) Exchange Rate Climbs amid UK Inflation Data

The Euro Pound (EUR/GBP) exchange rate has rebounded this morning, following an early dip after the release of inflation data for the UK spurred rate hike speculation.

As of time of writing the rate is around €0.8420 which is down -0.1% from this morning’s figures.

Pound (GBP) Surges on Strong Inflation Figures

The Pound (GBP) reached its highest point in 21 months against the Euro in the immediate aftermath of data showing that UK inflation has hit a ten-year. Speculation of an early interest rate hike by the Bank of England (BoE) is likely to have been the catalyst for this, although the currency subsequently relinquished the majority of these gains..

The figures released by the Office for National Statistics (ONS) showed an above-forecast rise of inflation to 4.2%, which is up from 3.1% in September and marks the highest rate since November 2011.

It’s thought that household energy bills were the biggest contributor to this drastic rise, as Ofgen lifted its cap on bills last month in an attempt to combat soaring wholesale gas prices. The surge in petrol prices and increased price of consumer goods are also thought to have been a factor.

This data is likely to put even further pressure on the BoE to raise interest rates ahead of schedule, although analysts are divided on where this is the right course of action. Richard Carter, head of fixed interest research at Quilter Cheviot, felt that because of this an early rate rise may not be the best move:

‘Some may say that the heightened inflation is evidence that the Bank of England should have acted already and started the process of tightening monetary policy. But really what’s causing the heightened price increases in the energy market is a perfect storm of factors that are all feeding through at the same time.

It’s not clear how a modest 0.15bps rate hike would have any impact on the heightened prices in the electricity and gas market. Normal monetary levers might not be effective.’

However, after governor Andrew Bailey surprised investors last month by not raising rates despite a hawkish tone, GBP investors appear a little more wary of placing any aggressive bets, likely resulting in the pullback in the Pound as market digested the data.

Euro (EUR) Steady as COVID-19 Cases Soar

The Euro (EUR) has risen slightly its competitors today, as weakness in the Pound if offset by a sharp rise in COVID-19 cases.

EUR investors are cautious amidst concerns rising cases could disrupt the economic recovery of the EU. Countries including Hungary, Germany, and the Czech Republic are all reporting record numbers of COVID-19 cases as they prepare for a potentially difficult winter.

Tuesday’s news that German energy regulators have suspended the certification process for the Nord Stream 2 gas pipelines could also affect confidence in the Euro today.

The pipeline has courted controversy since its inception as it appears to some European governments that Russia wished to use the pipeline to circumvent Ukraine as a gas route. Surging energy prices however that the extra supply from Russia is seen as necessary by German government officials.

EUR/GBP Forecast: Euro Investors Await ECB Speeches

Looking forward to the rest of the week, investors will be keenly watching the speech by ECB President Christine Lagarde later today and other board members of the course of the week for indications of the central bank’s monetary policy going forward. This could see the Euro face an uphill battle if Lagarde reiterates the bank’s dovish bias.

Friday will see the October’s retail sales data for the UK which is forecast to rise to 0.5% from -0.2%. Early Christmas shopping is thought to be the driver for these increased sales, as consumers seek to secure gifts amid supply woes.