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Pound to Euro Exchange Rate Edges Away from Lows as UK Inflation Report Beats Expectations

High UK Inflation Helped the Pound to Euro Exchange Rate Recover Slightly Today

After slipping from the week’s opening levels on Monday, the Pound to Euro (GBP/EUR) exchange rate saw stronger support on Tuesday thanks to Britain’s latest Consumer Price Index (CPI) report.

Last week saw volatile movement from the Pound (GBP) as higher Bank of England (BoE) interest rate hike bets clashed with Brexit uncertainties. GBP/EUR fell from 1.1333 to 1.1284 throughout the week.

GBP/EUR fell further on Monday and still remained in the region of 1.12 on Tuesday morning despite a modest recovery effort.

Demand for the Pound improved slightly on Tuesday as investors digested January’s UK inflation data. UK inflation remained at 3.0% year-on-year, above the expected 2.9%, while yearly core inflation rose from 2.5% to 2.7% and beat the expected 2.6%.

The data indicated that British price pressures were becoming stronger despite the recently steadier Pound.

While the news would typically boost Bank of England (BoE) interest rate hike bets, uncertainties in Britain’s economic outlook and the Brexit process limited BoE bets and the Pound’s recovery. According to Chris Williamson, chief economist from IHS Markit;

‘However, with mounting signs of economic growth slowing at the start of 2018, a May rate rise is by no means a done deal and will likely be dependent on the data flow improving in coming months. The Bank of England will likely need to see indicators of the economy’s health improve to be sufficiently reassured that the economy is ready for another rise in borrowing costs.’

Euro (EUR) Exchange Rates Benefit from Stronger Stock Markets

While there hasn’t been much in the way of influential Eurozone ecostats in recent sessions, the Euro (EUR) has still seen support due to global market movement.

Last week saw major stock markets around the globe suffer a sudden, but brief selloff. Analysts called the fall in stocks a correction following months of strong performance, but the movement still spooked investors and left them looking for ‘safe haven’ currencies.

Since Friday, equity markets and stocks have been gradually recovering and the market cooling. As a result, investors are less hungry for ‘safe havens’ and other investments like the Euro became more appealing again.

Irish consumer confidence rose in January according to Monday’s report, while Netherlands retail sales fell from 5.5% to 3.5% in Tuesday data.

Pound to Euro (GBP/EUR) Exchange Rate Forecast: Key Eurozone Growth Stats in Focus

A slew of key Eurozone data will be published on Wednesday and this could influence the Euro outlook if it surprises investors in some way.

The biggest focus will be on the upcoming Gross Domestic Product (GDP) stats, as Q4 growth projections will be published for Germany, Italy, The Netherlands and the Eurozone overall.

Germany’s yearly growth rate is forecast to have picked up slightly from 2.8% to 3%, while Eurozone growth is predicted to have slowed slightly.

If Eurozone growth beats expectations, it could make investors even more optimistic about the bloc’s economic outlook. The Euro has been appealing in recent months due to partially to the Eurozone’s strong economic outlook for 2018.

Other notable Eurozone data to keep an eye out for on Wednesday includes Germany’s final January inflation results and Eurozone industrial production.

Sterling, on the other hand, is likely to be driven by Brexit developments in the coming days, especially with UK economic uncertainties keeping pressure on Bank of England interest rate hike bets.

UK retail sales stats will be published on Friday, but the focus will likely remain on any fresh Brexit comments from UK or EU officials.