Euro Pound (EUR/GBP) Volatile despite Warming German Inflation
The Euro Pound (EUR/GBP) exchange rate is fluctuating today amid a series of impactful data releases for both the Eurozone and the UK.
At the time of writing the EUR/GBP exchange rate is trading at $1.0964, down approximately 0.3% from this morning’s opening rate.
Euro (EUR) Wavers amid Data Influx
The Euro (EUR) is struggling to find a clear direction as an uptick in German economic sentiment this morning reinforces expectations of imminent European Central Bank (ECB) interest rate cuts.
The latest German ZEW economic sentiment index exceeded expectations of 12, coming in at 15.2.
Achim Wambach, ZEW President, commented:
‘Economic expectations for Germany have improved again. This is because now more than half of the respondents assume that the ECB will make interest rate cuts in the first half of the year.’
Also released this mornings, the latest German inflation data came in as expected, warming to 0.1% in December, up from the previous month’s -0.4%. However, the data appears to have had little impact on the common currency as surmounting expectations of ECB rate cuts in the coming months take precedent influencing EUR trading conditions.
Pound (GBP) Muted as UK Wage Growth Cools
The Pound (GBP) was flat against most of its peers this morning following the UK’s latest employment data.
While unemployment held steady at 4.2%, the latest wage data reported a significant decline in weekly earnings.
Average earnings including bonuses fell more than expected to 6.5% in the three months prior to November 2023. Similarly, earnings excluding bonuses also fell to 6.6% in the same period. While today’s wage growth data came in at a six-month low, cooling earnings may be indicative of wider inflationary easing, which serves to undermine Sterling sentiment this morning, despite signs of stable UK unemployment.
Yael Selfin, Chief Economist at KPMG UK, noted:
‘The marked slowdown in pay growth will ease the Bank of England’s concerns of a potential wage-price spiral, which could lead to faster falls in inflation.’
Euro Pound Exchange Rate Forecast: UK Inflation in Focus
Looking forwards, the UK’s latest inflation data is due for release on Wednesday. A forecast cooling of inflation may see investor interest in GBP dwindle amid speculation of Bank of England (BoE) interest rate cuts in the first half of the year. However, economists only expect to see a marginal drop in inflation, falling from 3.9% to 3.8% in December’s year-on-year reading. This may serve to
Later on, a speech from BoE Governor Andrew Bailey is due and may drive GBP volatility. Should Bailey strike dovish in the wake of cooling inflation and declining UK wages, the Pound may stumble. However, should Bailey maintain that rate cuts remain distant from upcoming monetary policy, GBP could strengthen.
Looking to the Eurozone, much like its UK counterpart, the latest inflation data is due. December’s annual inflation rate is forecast to hit 2.9%, warming from 2.4% in the previous year. Should the data print in line with expectations, stubborn Eurozone inflation may lift the Euro sentiment, as investors pare back rate cut expectations.
A series of speeches by European Central Bank (ECB) policymakers may drive further EUR volatility in the afternoon, with any hawkish commentary boosting EUR sentiment.
