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Pound Euro Exchange Rate Muted as Investors Await Central Bank Meetings

Pound Coin on Euro Banknote GBP/EUR

Pound Euro (GBP/EUR) Exchange Rate Trades Narrowly Ahead of Central Bank Meetings

The Pound Euro exchange rate is mostly rangebound this morning following a spike at the opening of the European session. This was likely in response to above forecast inflation data for the UK, although investors now seem hesitant to place significant bets on GBP ahead of the Bank of England’s (BoE) meeting.

At time of writing the GBP/EUR Exchange Rate is at around €1.1763, virtually unchanged from this morning’s opening levels.

Pound (GBP) Drops Following Above Forecast Inflation Figures

The Pound jumped this morning after the UK’s rate of inflation rose well above forecasts, but pared a good portion of these gains.

The country’s rate of domestic inflation surged to a ten year high of 5.1% in November, up from 4.2% in October and well above forecasts of 4.7%. Prices pressures came from a large range of goods and services including petrol, clothing, footwear, and energy.

The news will place further pressure on the Bank of England (BoE) ahead of their Thursday meeting. The central bank had predicted that inflation would peak at 5% but not until early 2022, although a rate rise is still seen as unlikely given the uncertainty generated by the Omicron variant.

The BoE has surprised investors before however, and some analysts have called on the BoE not to succumb to ‘inaction bias’. If a rate rise does go ahead then Sterling is likely to shoot upwards.

KPMG economist Yael Selfin had the following analysis of the BoE’s approach:

‘Despite today’s inflation figures, we expect the Bank of England to adopt a wait-and-see approach at this week’s meeting, allowing for more time to assess the net impact of the Omicron variant on growth and inflation.’

Euro (EUR) Muted ahead of ECB Meeting

The Euro has remained subdued against its rivals today, as investors wait in the wings ahead of the European Central Bank’s (ECB) Thursday meeting.

Whilst ECB President Christine Lagarde has repeatedly stated that the central bank would not be raising interest rates until at least April 2022, rising global inflation and pressure exerted on the markets by the Omicron variant has left some room for speculation. 

Dirk Schumacher, an ECB watcher with Natixis, also though that the ECB may need to change its approach ahead of Thursday’s meeting:

‘The sharp rise in infections and inflation and the emergence of the new Omicron variant has complicated the picture to an extent that the Governing Council may need more time to decide on all the details of adjusting its non-conventional policy tool.’