GBP/EUR exchange rate midweek update: pound boosted by sharp rise in UK inflation
18/11/2024 to 20/11/2024: The pound euro (GBP/EUR) exchange rate recovered from a 13-day low after UK inflation rose sharply to its highest rate for six months.
Monday
The pound euro (GBP/EUR) exchange rate briefly dipped to a 12-day low in the €1.19 mid-range amid a risk-averse market mood that favoured the safe haven single currency.
This was compounded by fresh warnings about the potential economic impact of Donald Trump’s proposed trade tariffs. According to the CEBR think tank, the UK economy could shrink by almost 1% if the president-elect proceeds with his plan to impose a 20% tariff on all imports.
The euro was also supported by its positive correlation with the dollar, which was buffeted by headwinds.
Tuesday
The pair touched a 13-day low around €1.194, as an absence of influential data left the pound exposed to concerns about the Kremlin’s warning that it might consider a nuclear response to Ukraine using US weapons to target Russian territory.
Comments from Bank of England (BoE) officials indicating the central bank could cut interest rates faster than markets expect applied additional downward pressure to the UK currency.
The euro was also undermined by heightened tensions between Russia and the West, before paring its losses following a dollar reduction, with which the single currency has a negative trading relationship.
Wednesday
The pound rose above the €1.20 benchmark, touching a five-day high, following the release of the UK’s Consumer Price Index (CPI).
UK inflation accelerated sharply to 2.3% in October from 1.7% the previous month, just above forecasts of 2.2%, leading investors to further reduce bets that BoE will cut interest rates next month, bolstering the pound.
Core inflation also rose, up from 3.2% in September to 3.3% and higher than expectations of a dip to 3.1%.
The print reinforced the BoE’s intention to pursue a “gradual” approach to rate cuts as it seeks to meet its 2% inflation target.
Looking ahead
The Eurozone and the UK release November PMI data on Friday, which will provide an overview of economic progress on both sides.
The UK's manufacturing and services PMI data will be in sharp focus as they could reflect the fallout from the autumn budget. Reports suggest that business sentiment and hiring intentions were hindered in the wake of the budget, which could produce a poor PMI reading that undermines the pound.