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GBP/EUR Exchange Rate to Drop in the Wake of Eurozone Inflation?

Pound and Euro coins on a five-Pound note.

GBP/EUR Exchange Rate to Remain Muted ahead of EU Inflation Release?

The Pound Euro (GBP/EUR) exchange rate is directionless as investors become cautious ahead of the Eurozone’s inflation data this morning.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1654, having barely changed from this morning’s opening rate.

Euro (EUR) to Gain Ground Post Inflation Release?

The Euro (EUR) seems to be struggling today, trading in narrow margins with most of its peers. This is largely attributed to the inflation data due to print later today.

Headline inflation is forecast to rise from 9.9% to 10.2% in October, which would be a new record for the bloc. Core inflation, which strips out volatile commodities such as fuel and food, is expected to rise from 4.8% to 4.9%.

Investors seem to be waiting for the release of the data before they begin rate hike bets. The European Central Bank (ECB) has taken up aggressive policy tightening to tackle rising inflation. As such, the hotter the data, the surer EUR investors will be of a sharp interest rate rise.

At the moment, investors are pricing in a 75bps rise, which means the Euro will likely firm post data release as it supports or exceeds expectations.

Pound (GBP) to Remain on Back Foot in Lieu of Any Data?

The Pound (GBP) is down against the majority of its peers this morning as a lack of significant data has left investors with very little to trade on. As such it’s possible that attention has turned to data set to release tomorrow.

The UK’s manufacturing PMI is expected to show a contraction. Figures are expected to drop from 48.4 to 45.8 in October, the worse reading since May 2020. This is due to a sharp decline in production, spurred on by a lack of demand caused by recession fears.

However, the Pound’s losses could be limited by an undercurrent of aggressive rate hike bets. The Bank of England (BoE) is expected to raise interest rates by 75bps on Thursday, the largest rise in 33 years.

Expectations of a large rate rise could be underpinning the Pound, limiting its losses.

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