GBP/EUR Exchange Rate Slides as UK Inflation Comes in Below Expectations
The Pound Euro (GBP/EUR) exchange rate is retreating this morning as UK inflation came in below expectations last month.
At the time of writing the GBP/EUR exchange rate has edged down by around 0.2%, leaving the pairing to relinquish much of yesterday’s gains.
Pound (GBP) Exchange Rates Slide as Subdued Inflation Dampens BoE Rate Expectations
The Pound (GBP) is trending lower against the Euro (EUR) and the majority of its other peers this morning following the publication of the UK’s latest Consumer Price Index (CPI).
According to the CPI data published by the Office for National Statistics (ONS), UK inflation slipped from 2.7% to 2.4% last month, falling below the modest slide to 2.6% that had been forecast by economists and striking its lowest levels since June.
Explaining the main contributing factor behind the fall, ONS statistician Mike Hardie said:
‘Food was the main downward pull on inflation as last year’s September price rises failed to reappear, while ferry prices dropped after their surprisingly high summer peak.’
While the fall in inflation will be welcome news to UK households, providing families with a little more spending power, it is also likely to relive pressure on the Bank of England (BoE) to tighten monetary policy, something which will disappoint GBP investors.
UK inflation slows more than expected in September to 2.4%. Good news, in that it helps relieve the squeeze on real incomes. Will it be enough to make the Bank of England hold off on further rate hikes? pic.twitter.com/7R0SyHMLST
— Jamie McGeever (@ReutersJamie) October 17, 2018
Euro (EUR) Gains Clipped by Drop in Underlying Eurozone Inflation
At the same time the Euro’s (EUR) gains against the Pound (GBP) this morning have been trimmed somewhat by the release of the Eurozone’s own CPI figures.
While September’s final reading confirmed that headline inflation rose from 2% to 2.1% as expected, EUR investors were more focused on the accompanying core figures, which revealed that with volatile items such as food and energy stripped out, underlying inflation actually fell back last month.
Analysts warn that without a strong foundation, headline inflation is in danger of falling back below 2% in the coming months, something which much to the dismay of EUR investors could delay a possible rate hike from the European Central Bank (ECB) next year.
GBP/EUR Exchange Rate Forecast: Sterling in Focus as PM Heads to Brussels
Looking ahead, Brexit is likely to become the main catalyst for movement in the Pound Euro (GBP/EUR) exchange rate once again in the second half of the week as Theresa May heads to Brussels for the latest EU summit.
It was previously hoped that this month’s summit could see the UK and EU finalise a ‘divorce’ deal, however with the two sides deadlocked regarding the Irish border expectations for the summit are low, something which will likely result in many investors shying away from Sterling for the duration of the summit.
Further pressure may also be applied with the release of the UK’s latest retail sales figures on Thursday, with economists forecasting sales growth will have contracted in September.
Meanwhile a lull in notable data may hinder the Euro’s ability to advance over the next couple of days, potentially leaving movement in the single currency against its other peers to also be tied to the outlook on Brexit following the EU summit.