Pound Euro (GBP/EUR) Exchange Rate Slips as UK Inflation Prints Below Forecasts
The Pound Euro (GBP/EUR) exchange rate is weakening today, as the latest UK inflation data printed at a softer level than expected.
At the time of writing, GBP/EUR is trading at around €1.1722, a fall of roughly 0.3% from today’s opening levels.
Pound (GBP) to Slide as UK Economy Contracts?
So far today, the Pound (GBP) is weakening against most major peers following softer than expected inflation data. Markets had anticipated both core and headline inflation rates to increase, but January’s data actually held at 5.1% and 4% respectively.
This is serving to prompt interest rate cut bets amongst markets, with investors now anticipating a rate cut in May, which is contributing additional headwinds for the Pound.
Looking ahead, tomorrow brings the lates UK GDP data, reflecting economic growth in the fourth quarter of 2023.
Economists are currently forecasting the UK economy to have contracted on a quarterly basis, shrinking by 0.1%. If this prints in line with forecasts, this is likely to weigh heavily on the Pound as it would indicate that the UK had entered a technical recession.
This may further spark interest rate cut bets amongst investors, as the BoE may be pushed to cut rates earlier than initially planned in the face of a shrinking economy.
Elsewhere, risk appetite is likely to play a key role in shaping the Pound. As an increasingly risk-sensitive currency, a shift towards bearish trade could pile additional pressure on Sterling, and prompt it to slip further against safer assets.
Euro (EUR) to Rally amid Hawkish ECB Remarks?
The Euro (EUR) is enduring muted trade this morning, following dovish commentary from European Central Bank (ECB) policymakers.
In a speech, Vice President Luis de Guindos commented that inflation was heading in the right direction, but refrained from indicating a clear timeline for interest rate cuts.
However, any losses may have been offset by confirmation that the Eurozone avoided a recession, and that industrial production increased above forecasts in December.
Looking ahead, the core catalyst of movement is likely to be a speech from European Central Bank President Christine Lagarde.
Lagarde is expected to deliver her remarks tomorrow, and could strengthen the common currency if she strikes a hawkish tone and pushes back against existing rate cut bets.
However, if her words are unconvincing to investors, the Euro may soften as markets move to price in a summer rate cut from the central bank.
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