The Pound to Euro (GBP/EUR) exchange rate soared this morning, as the release of the UK’s consumer price index (CPI) boosted sentiment that inflation would rapidly increase in the coming months.
At the time of writing, the GBP/EUR exchange rate is trading at around 1.1301, which is the highest level since May 2020.
Pound Supported by UK CPI Data and Vaccination Rollout
The Pound was supported this morning by better-than-expected inflation data and the continued vaccine rollout.
Following the release of the UK’s CPI data this morning, published by the Office for National Statistics (ONS), the Pound strengthened as domestic inflation beat forecasts and rose from 0.3% to 0.6% in December.
Whilst inflation remains below the Bank of England’s (BoE) 2% target, analysts believe that this increase in inflation is likely to be bolstered in the following months.
Furthermore, continued optimism over the UK’s vaccine rollout has provided further support for the Pound.
However, Home Secretary Priti Patel repeated the significance of implementing lockdown restrictions until those who are clinically vulnerable have been vaccinated.
Speaking to Sky News this morning, Patel said:
‘We are at a pivotal stage. Our vaccine rollout is under way but we have a long way to go with vaccination.’
‘We cannot talk about easing restrictions and measures until we are absolutely clear we have vaccinated priority groups.’
Euro Struggles ahead of ECB Policy Decision
The Eurohas struggled this morning as the shared currency awaits the European Central Bank (ECB) policy decision for January.
As the bank has already brought into effect dovish quantitative easing (QE), markets are concerned over which direction the bank will take tomorrow.
The Eurozone economy continues to be hit by the second wave of the coronavirus as the biggest economies in the bloc implement further restrictions to bring down infection rates.
Monetary policy tightening is not expected from the ECB anytime soon, with the bank predicted to follow its favourable financing conditions for an unspecified period of time.
Pound to Euro Exchange Rate Outlook: Coronavirus and PMI’s in Focus
As mentioned, Euro investors will look to the ECB’s January policy decision tomorrow, with the bank expected to keep its current dovish tone.
This could lower market appetite for the currency which could prove positive for the Pound.
Pound investors will continue to focus on any coronavirus developments, with any signs that the infection rate is continuing to fall and the national lockdown is working to tackle the pandemic potentially boosting Sterling further..
Furthermore, Pound traders will also be looking towards Friday’s PMI projections which will be influential on the GBP/EUR exchange rate.
The Pound to Euro exchange rate could also be affected throughout today’s session as Joe Biden’s inauguration starts to take place, which could cause shifts in market sentiment if things don’t go to plan.
Hints at any stimulus new could boost appetite and prove positive for the Pound and Euro.