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Euro Pound Exchange Rate Edges Lower as Pound Supported by UK Inflation Data

Pound Euro exchange rate outlook

The Euro Pound (EUR/GBP) exchange rate is edging lower this morning as the Pound finds support from the latest inflation data from the UK.

At the time of writing the EUR/GBP exchange rate is trading at around 0.8617 as Euro investors await the ECB’s latest interest race decision tomorrow.

Euro (EUR) Edges Lower as Markets Await ECB Interest Rate Decision

The Euro has edged lower against the Pound this morning as markets and investors alike await the latest European Central Bank (ECB) decision tomorrow.

Furthermore, as the US Dollar rebounds from a pullback in US treasury yields the Euro suffers due to the negative correlation in the pairing.

Supporting the Euro however was the announcement from the European Medicines Agency (EMA) that recommended that blood clots should be listed as a ‘very rare’ side effect of the Johnson & Johnson one-dose vaccine.

Like the AstraZeneca vaccine, there had been concerns over the safety of the Johnson & Johnson vaccine following reports of blood clotting. However the EMA have reported that the benefits of the vaccine outweigh the risks, saying:

‘Covid-19 is associated with a risk of hospitalisation and death. The reported combination of blood clots and low blood platelets is very rare, and the overall benefits of the Johnson & Johnson Covid-19 vaccine in preventing Covid-19 outweigh the risks of side effects.’

Pound (GBP) Supported by UK Inflation Data

The Pound is being supported against the Euro this morning following the release of the latest Consumer Price Index (CPI) inflation from the UK.

The figure from the Office for National Statistics (ONS) was slightly below coming in at 0.7%, with the ONS saying that inflation would have risen higher in March if it had not been for a fall in food prices.

Samuel Tombs, Pantheon’s chief UK economist, suggested that CPI could reach the Bank of England’s (BoE) 2% target rate as early as next month:

‘Looking ahead, CPI inflation looks set to jump to about 1.7% in April, driven primarily by a large semi-annual increase in electricity and natural gas prices, as well as the anniversary of the collapse in oil prices at the start of the pandemic.’

‘April’s data also will be collected after shops reopened and hospitality businesses resumed outdoor service, so the inflation rates for clothing and food service activities probably will both rise.’

The Pound’s gains have been limited however, as concerns over the Indian mutation of the coronavirus creep in as the UK adds India to its travel ‘red-list’ as of Friday 23rd.

The Indian variant of the virus has so far been classified as a ‘variant under investigation’ in the UK, with 103 cases identified so far.

Euro Pound Exchange Rate Outlook: ECB Interest Rate Decision in Focus

For Euro traders, tomorrow’s ECB interest rate decision will be in focus which could cause the Euro to weaken further, as though the interest rate is expected to stay at the record low of 0%, the recent surge in coronavirus cases across Europe could result in a more dovish outlook from the central bank.

For Pound investors, Friday will see the release of retail sales data from the UK for March, along with flash PMI’s for April.

Retail sales are expected to have increased to 4% year-on-year during March as the UK’s economy began to reopen.

The GBP/EUR exchange rate will continue to be driven by any further coronavirus developments in the coming days, with an increased concern over the Indian variant of the virus in the UK potentially dragging the Pound down.