Home » EUR » Will Pound to Euro Rate Fall Further on Inflation to Earnings Disparity?

Will Pound to Euro Rate Fall Further on Inflation to Earnings Disparity?

Pound Sterling Currency Forecast

The Pound has tumbled against the Euro today, dropping in the pairing by -0.7%.

This poor performance comes from high uncertainty about the Bank of England (BoE), which could intensify over the week.

The Euro is charting an opposite course, on track to make major gains if economic conditions keep improving.

Heavy Pound Losses possible if Upcoming Earnings Figures Disappoint

The present Pound to Euro weakness is partly down to recent UK inflation rate data.

In October, it has been reported that core and base inflation has remained unchanged, at 2.7% and 3% respectively.

In both cases, this leaves the pace of inflation above the level of wage growth, resulting in wage squeeze conditions.

Commenting on the results was Thomas Wells, Manager at Smith & Williamson Global Inflation-Linked Bond Fund;

‘UK inflation remains elevated, in line with our expectations.

We continue to view the post-referendum weakness in Sterling as the key driver of the recent spike in inflation, putting pressure on household budgets.

This is unquestionably bad for consumers, especially when combined with the recent increase in interest rates pushing up mortgage repayments.

We therefore expect conditions to remain tough, putting downward pressure on demand, and hence inflation, over the next six months’.

If Wednesday’s UK average earnings figures prove disappointing, this could lead to the Pound falling further against the Euro.

This is mainly down to the Bank of England (BoE) – if conditions fail to improve then the BoE may hold off on raising interest rates for many months ahead.

Speculating on the matter, Aberdeen Standard Managements Senior Economist Paul Diggle has said;

‘The BoE is stuck between a rock and a hard place: inflation is well above target; but Brexit uncertainty lingers and consumer spending growth could weaken.

On balance, we think the BoE will have to hike interest rates at least once more next year’.

Can Euro Cement EUR GBP Gains on Upcoming Inflation Figures?

The Euro has been aided recently by Eurozone GDP, which has risen for Germany and the currency bloc as a whole.

Greater economic growth bodes well for the future, as it may cause the European Central Bank (ECB) to view the Eurozone as strong enough for some monetary policy tightening.

In this line, Eurozone inflation rate data will be out later this week on Thursday.

Estimates are for higher reported inflation in October, which would also encourage the ECB to consider policy tightening.

Slightly further ahead, ECB President Mario Draghi will be speaking on Friday. If he mentions the strong GDP and possibly higher inflation figures, this could inspire sharp EUR GBP gains.

Recent Interbank GBP EUR Exchange Rates

At the time of writing, the Pound to Euro (GBP EUR) exchange rate was trading at 1.1172 and the Euro to Pound (EUR GBP) exchange rate was trading at 0.8949.