GBP/EUR exchange rate midweek update: pound firms against euro despite cooling UK inflation
The pound euro exchange rate (GBP/EUR) firmed despite cooling UK inflation, as services CPI continued to print to the upside, dampening rate cut expectations.
(17/06/2024 to 19/06/2024)
Monday
The pound euro (GBP/EUR) exchange rate softened from the 1.18 mid-range to around 1.181 amid a lack of economic data from the UK and Eurozone.
The euro continued to be undermined by concerns over France’s upcoming snap election. Following defeat in the European elections earlier this month, French President Emmanuel Macron’s called a vote for the end of June.
Macron’s announcement spooked euro investors, who fear his election gamble might not pay off, potentially allowing the far-right National Rally party to dominate parliament – an outcome that could lead to the President’s economic reforms being blocked.
The pound traded sideways as a lack of UK macroeconomic data and a prevailing risk-off market mood left it devoid of direction.
Tuesday
The pair remained subdued despite the German ZEW economic sentiment index falling short of forecasts as investor morale tapered off in June.
The index increased to 47.5 points from 47.1 points in May, missing economists’ expectations for a June reading of 50. This signalled stagnation in sentiment across the Eurozone’s largest economy, creating euro headwinds.
Stumbling German economic optimism was offset by falling UK grocery inflation, which dropped for the 16th consecutive month – easing from 2.4% in May to a print of 2.1% in June.
Wednesday
The pound edged up into the 1.18 mid-range versus the euro despite UK inflation cooling to the Bank of England’s (BoE) 2% target for the first time in three years – before settling around 1.183.
The UK’s latest consumer price index showed headline inflation rose at 2% in the year to May, down from 2.3% the month before, while core inflation eased from 3.9% to 3.5%.
Despite this, the pound managed to trade on the front foot amid signs of sticky services sector inflation, which printed above the BoE’s 5.3% prediction, coming in at 5.7% – indicating that the war on inflated prices isn’t won yet.
The higher-than-expected rises in prices for services caused the pound to increase in value having led investors to dial back bets on BoE interest rate cuts.
Looking ahead
The BoE concludes its June policy meeting on Thursday by announcing its latest interest rate decision. With less than a 5% chance of a rate cut, pound investors will focus on the central bank’s forward guidance for any clues regarding its monetary policy outlook – although this could be limited ahead of the election. Any signals that a rate cut is coming following news of cooling headline inflation could dent the UK currency.