UK Inflation Report in Focus for Euro to Pound (EUR/GBP) Exchange Rate Traders
Despite news that some finance ministers from EU member nations were willing to help Britain achieve a ‘soft Brexit’, the Euro to Pound (EUR/GBP) exchange rate advanced last week.
On Monday, the Euro to Pound (EUR/GBP) exchange rate traded within a narrow range amid a lack of reasons to buy either currency.
Sterling’s gains on soft Brexit hopes were limited, and the Euro (EUR) is already strong which is pressuring it from sustaining many further gains.
Instead, investors are awaiting key Consumer Price Index (CPI) datasets due in the coming days. Britain’s UK inflation report will be published on Tuesday and could set the tone for Pound (GBP) trade this week.
If it comes in higher than expected it could boost bets that the Bank of England (BoE) will take a hawkish stance this year. However, the same could be said for Eurozone inflation, due Wednesday, and European Central Bank (ECB) hawkishness.
Euro (EUR) Exchange Rates Supported by ECB and German Coalition Hopes
Last week, the Euro was made more appealing by the European Central Bank’s (ECB) latest meeting minutes, as well as reports suggesting that Germany could be closer to seeing another ‘grand coalition’.
The ECB’s meeting minutes for December saw unexpected changes, as the bank hinted that it may need to change its forward guidance language in early 2018.
With the bank now expected to take a more hawkish outlook perhaps sooner than markets expected, speculation is rising that the bank could also be preparing to tighten monetary policy again sooner than expected too. This unsurprisingly led to stronger Euro demand.
Investors also found the shared currency more appealing following news that German Chancellor Angela Merkel’s CDU Party was getting closer to securing a fresh ‘grand coalition’ with the SPD Party.
Germany’s previous government was a ‘grand coalition’ too, so the formation of a new one would boost market hopes for economic consistency in Germany over the coming years.
Pound (GBP) Exchange Rates Supported by Soft Brexit Hopes
The Euro to Pound (EUR/GBP) exchange rate could have climbed higher last week if the latest Brexit news hadn’t made Sterling more appealing too.
Reports emerged on Friday that finance ministers from Spain and The Netherlands were willing to work with Britain to achieve a ‘soft Brexit’ and keep Britain as close as possible to the EU.
While the reports were later denied, the rumours were enough to make Pound investors hopeful that some EU officials could help make a ‘soft Brexit’ a reality.
Euro to Pound (EUR/GBP) Forecast: Inflation Reports to Influence Movement
Consumer Price Index (CPI) data is likely to be the biggest influence of Euro to Pound (EUR/GBP) exchange rate movement in the coming days.
Tuesday will see the publication of final December inflation results from Germany, Italy and most vitally, Britain.
UK inflation is forecast to have slipped from 3.1% to 3% year-on-year but rise from 0.3% to 0.4% month-on-month.
If UK inflation was higher than expected in December, it will boost market speculation that the Bank of England (BoE) could be pressured into taking a more hawkish stance on UK monetary policy again within the coming months.
However, weaker UK inflation could leave the Pound weak amid concerns that UK price pressures are still subdued overall.
The Eurozone’s December inflation results will follow on Wednesday. It is forecast to have risen from 0.1% to 0.4% month-on-month but to have slipped from 1.5% to 1.4% year-on-year.
If inflation comes in higher than expected, the Euro will climb on hopes that the European Central Bank (ECB) will tighten Eurozone monetary policy at a quicker pace than expected.
UK retail sales data, due on Friday, could also influence the Euro to Pound (EUR/GBP) exchange rate this week.