Euro Pound (EUR/GBP) Exchange Rate Falls as UK CPI Soars to 10.4%
The Euro Pound (EUR/GBP) exchange rate is falling this morning, following a shock jump in UK CPI to 10.4%, far above forecasts.
At the time of writing, EUR/GBP is trading at around £0.8778, a fall of around 0.4% from the morning’s opening rates.
Pound (GBP) Rallies on Shock Inflation Jump
The Pound (GBP) is strengthening this morning, following news that headline inflation increased to 10.4% in February.
The Office for National Statistics (ONS) published the UK’s latest CPI data this morning. The data showed that both core and headline inflation had jumped, far above forecasts, reversing a four-month fall in prices.
As such, ahead of tomorrow’s interest rate decision from the Bank of England (BoE), analysts and investors are expecting further hikes. While recent tumult in the banking sector has put the breaks on somewhat, inflation jumping puts the BoE in a precarious position.
Richard Carter, Head of Fixed Interest Research at Quilter Cheviot, commented:
‘Given the market movements of late, this puts the Bank of England in an incredibly difficult position as it may not be enough for the Bank of England to press pause on the rate hikes.’
As such, the Pound is strengthening on the possibility of further tightening after this morning’s shock jump in CPI.
Euro (EUR) Cushioned by Hawkish ECB
The Euro (EUR) is trapped in narrow bounds this morning, but may be being supported by hawkish rhetoric from the European Central Bank (ECB).
In a speech delivered this morning, ECB President Christine Lagarde reiterated that inflation remained too high. She stated:
‘For inflationary pressures to ease, it is important that our monetary policy works robustly in the restrictive direction. And that process is only starting to take effect now.’
While this may have served to underpin EUR, her speech may have also limited the common currency. President Lagarde further stated that the ECB had neither committed nor moved away from future rate hikes.
Euro Pound (EUR/GBP) Exchange Rate Forecast: BoE Rate Hike to Boost GBP?
Looking ahead for the Pound, tomorrow brings the latest interest rate decision from the Bank of England.
While a 25bps hike is priced in, the accompanying meeting minutes could drive Sterling. If they indicate a hawkish stance, GBP could rally. However, if they indicate a need for trepidation, Sterling may weaken.
On Friday, the latest retail sales data for the UK is released. A slowdown is expected in February’s data, printing at 0.2%. While still showing healthy sales, the slowdown could dent Sterling due to the UK’s dependence on commerce.
For the Euro, the latest set of private sector PMIs for both the bloc and Germany are due on Friday. With the German and EU manufacturing sectors forecast to remain in contraction, this could weigh on EUR.
However, the Eurozone and German service sectors are both forecast to have grown in March, which could offset these losses.
