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Pound Euro (GBP/EUR) Exchange Rate Forecast: Inflation Data in Focus

Pound and Euro coins lined up

GBP/EUR Exchange Rate Wavers on Bleak GDP Data

The Pound Euro (GBP/EUR) exchange rate is trading without a clear trajectory today as the latest UK data disappointed markets.  

At the time of writing the GBP/EUR exchange rate is trading at around €1.1633, virtually unchanged this morning’s opening rate.

Pound (GBP) Slumps following Lacklustre GDP Data

The Pound (GBP) wavered today as bleak GDP data fuelled concerns of a looming UK recession, serving to undermine Sterling as the week draws to a close.

Looking ahead, the latest UK employment data is due for release on Tuesday next week and is likely to drive significant GDP volatility.

Economists expect to see a marginal uptick in unemployment to 4.3% in November, slightly up from 4.2% in the previous month. Furthermore, average earnings in the UK are expected to hit a six-month low in November’s three-month average report. Declining wage growth and rising unemployment may point to loosening within the UK’s labour market, serving to sour Sterling sentiment.

On Wednesday, the latest inflation data is expected to report marginal cooling of UK inflation to 3.8%. Should the data print as forecast, expectations of Bank of England (BoE) interest rate cuts may be pulled forwards, thereby denting the Pound.

Later in the week, the UK’s latest retail sales data is forecast to report a 0.5% contraction in December, falling significantly from the previous month’s 1.3% expansion. Significant declines in consumer activity may serve to further undermine GBP as the week nears an end, further driving concerns of a UK recession in last year’s fourth quarter.

Euro (EUR) Quiet despite Hawkish ECB Comments

The Euro (EUR) is trading without a clear trajectory today, despite hawkish commentary from European Central Bank (ECB) policymaker, Philip Lane. While Lane argued that it is too soon to be discussing ECB interest rate cuts, investors opted for the Euro’s stronger peers amid a lack of notable Eurozone data releases to support the ECB policymaker’s remarks.

Looking ahead, Germany’s latest inflation data is forecast to report warming in both monthly and annual inflation on Tuesday. Should the data print in line with forecasts, significant warming of German inflation may lead to pared back ECB rate cut bets, with sticky inflation causing investors to resize their current speculations.

Germany’s latest ZEW economic sentiment index is also due for release on Tuesday and is likely to drive EUR volatility. Taking into consideration the economic outlook of 300 economists, a forecast decline may see the Euro falter amid signs that both the German and wider Eurozone economy remain in precarious positions.  

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