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UK Inflation Surges, Euro Pound Exchange Rate Drops

Despite optimistic comments about the Eurozone from Bundesbank’s President, the Euro Pound exchange rate dropped today as GBP broadly strengthened.

  • EUR GBP rate drops to 0.86 – GBP EUR trades up to 1.15
  • Euro influenced by Bundesbank remarks – Will ECB consider policy tightening in future?
  • Pound rallies after inflation hits 2.3% – Major GBP uptake on interest rate implication
  • Euro losses possible on confidence scores – Pound losses possible on industrial stats

Although the UK’s inflation report triggered EUR GBP exchange rate movement later in the European session, the Euro was previously trading higher thanks to Emmanuel Macron winning the first televised debate in the French election.

EUR exchange rates were also supported by positive comments relating to the Eurozone economy.

Speaking on Monday, President Jens Weidmann was cautiously optimistic about the Eurozone’s outlook;

‘One can ask whether the European Central Bank (ECB) council should slowly start considering an exit from the very easy [monetary] policy.’

Weidmann was speaking in the context of rising Eurozone inflation, which has been linked to the ECB eventually upgrading its outlook and reconsidering when to raise interest rates.

While this news has supported the Euro, it has failed to prevent a GBP EUR jump on February’s UK inflation rate figures.

UK inflation bested forecasts in February, showing an annual rise from 1.8% to 2.3% – above the forecast 2.1%.

While this could amplify inflationary pressures on consumers, the news has nonetheless boosted Sterling as it could improve Bank of England (BoE) interest rate hike bets.

Upcoming Eurozone announcements consist of a speech from ECB official Sabine Lautenschlaeger along with the release of the ECB’s bulletin, both on Wednesday.

Another potential source of Euro movement will be Thursday’s German, French and Eurozone confidence scores.

These may have a net positive effect on the Euro as the German and French figures are expected to remain unchanged while a Eurozone improvement from -6.2 to -5.7 is forecast.

Following Monday’s remarks from Andy Haldane, the Pound may be moved again today by BoE comments, this time from Governor Mark Carney.

Carney will be discussing the trustworthiness of banks. Closing off today’s Pound movement will be the Confederation of British Industry (CBI) industrial orders release.

The Pound could give up some of this morning’s gains after the report is published as a drop from 8 points to 5 is forecast.

Current EUR GBP Interbank Exchange Rates

At the time of writing, the Euro to Pound (EUR GBP) exchange rate was trading at 0.86 and the Pound to Euro (GBP EUR) exchange rate was trading at 1.15.