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Pound Euro (GBP/EUR) Exchange Rate Holds Steady as UK Inflation Cools in July

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GBP/EUR Exchange Rate Rangebound, Could Rising UK Covid-19 Cases Weaken Sterling?

The Pound Euro exchange rate held steady, trading around €1.17 this afternoon following the release of the latest UK inflation data for July, which eased from June’s 2.3% to 2%. This has lifted pressure on the Bank of England (BoE).

Paul Inman, the economics writer for The Guardian, comments:

‘Most City economists dismissed the fall in inflation, saying it was likely to be a blip on the way back up to 4% sometime later this year or in early 2022. They are probably right.

‘But as the Bank of England argued in its latest outlook for the economy, it is difficult to see how price rises are sustained once computer chip production races back to its pre-pandemic level and cars trundle off production lines at the usual pace.’

As a result, the Pound Euro exchange rate has remained steady, with GBP traders instead focusing on the nation’s coronavirus developments.

With daily cases of the virus heading higher along with hospitalisations, many Pound investors are concerned that autumn could see a sharper rise still, which could limit the nation’s economic recovery.

Euro (EUR) Exchange Rate Steady as Eurozone Inflation Data Beats Forecasts in July

The Euro (EUR) also remained relatively unmoved today following the release of July’s Eurozone inflation data, which beat forecasts and rose to 2.2%. The European Central (ECB) also predicted a further uptick in inflation for the months ahead.

Analysts at Reuters explain:

‘Supporting the ECB’s stance, underlying price pressures remained muted, with a core indicator excluding volatile food and fuel prices at 0.9% on an annual basis, the same as in June, Eurostat data showed, confirming the previous reading published in late July.’

Instead, demand for the safe-haven single currency has risen, with Covid-19 cases rising in China and New Zealand, leaving investors weary of risky assets.

Euro traders are also monitoring the Euro area’s Covid-19 developments. Any signs of increasing hospitalisations from the virus would be EUR-negative.

GBP/EUR Exchange Rate Forecast: UK Covid-19 Developments in Focus

Pound (GBP) traders will continue to eye the UK’s Covid-19 situation this week. A sudden rise in daily cases and hospitalisations would weaken demand for Sterling.

Meanwhile, the Euro (EUR) will remain sensitive to global economic developments. Could a dimming outlook for the world economy drive-up demand for the safe-haven Euro?