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GBP/EUR, GBP/USD Exchange Rates Forecast to Trend Lower despite Rising UK Inflation

Pound Sterling (GBP) Bearish ahead of UK Employment Data Today

The Pound (GBP) has continued to downtrend against both the Euro (EUR) and the US Dollar (USD) on Wednesday morning, with investors cautious ahead of the day’s raft of UK employment data. With the chances of a significant policy divergence between the Bank of England (BoE) and the Fed heightened, and pundits increasingly suggesting that the BoE might leave interest rates unchanged for another year, there has been little incentive to favour Sterling today.

Earlier…

Although the UK recorded positive inflation in November the Pound (GBP) has stayed relatively bearish on Tuesday morning as the US Dollar (USD) softens and the Euro (EUR) holds onto its recent gains.

Strengthened UK Inflation Fails to Bolster Demand for Pound Sterling (GBP)

In spite of UK headline inflation having returned to positive territory in November, climbing from -0.1% to 0.1%, the Pound (GBP) has remained in a bearish slump against the majors. Investors are showing increasing concern over the bubble that has formed in the domestic housing market, a position enforced by the news that house price inflation has climbed to 7%. As the Bank of England (BoE) appears to remain decidedly dovish and inflationary pressure is still a long way from the central bank’s 2% target there seems to be little particular incentive to buy into Sterling this week.

Euro (EUR) Exchange Rates Advance as Eurozone Economic Confidence Rises

Yesterday European Central Bank (ECB) President Mario Draghi reiterated a willingness to expand the ECB’s quantitative easing program and engage in fresh monetary loosening measures in order to get the Eurozone’s growth and inflation back on track. While the policymaker’s words did initially push the Euro (EUR) down against rivals this dip was not particularly long-lived, as pundits show an increasing reticence towards the ECB’s under-delivering dovish rhetoric.

The common currency was shored up further as the Eurozone’s December ZEW Economic Sentiment Surveys demonstrated that confidence is continuing to strengthen within the currency bloc. Climbing from 28.3 to 33.9, this stronger showing prompted the Euro to rise against both the Pound and the US Dollar (USD).

US Dollar (USD) Volatile Today ahead of FOMC Policy Meeting and Inflation Data

Tuesday marks the beginning of the Federal Open Market Committee’s (FOMC) final policy meeting of 2015, which markets widely expect policymakers voting to raise interest rates for the first time in nine years. However, with the potential move already so well telegraphed to investors in advance, however, the impact of a hike has already been priced into the ‘Greenback’. As a take-off to monetary tightening is considered an almost gone conclusion traders are increasingly occupied with the level of hawkishness Chair Janet Yellen may display on Wednesday, with attention focusing on the Fed’s outlook for the coming year.

While some measure of uncertainty and doubt that the FOMC might be making a move too early have been weighing the ‘Buck’ down today, there could be a fresh rally on the back of today’s US Consumer Price Index data. Inflation is forecast to have picked up on the year in November, rising from 0.2% to 0.5%, a bullish indication that would give additional incentive to the Fed to hike rates tomorrow.

Current GBP, EUR, USD Exchange Rates

At time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was trending lower around 1.3771, while the Pound Sterling to US Dollar (GBP/USD) pairing was on a slight uptrend at 1.5161. Meanwhile, the Euro to US Dollar (EUR/USD) exchange rate was making gains in the range of 1.1010.