UK STERLING: Pound to Euro (GBPEUR) Remains Close to 22 Month Best Exchange Rate Level

July 15, 2014 - Written by John Cameron

STORY LINK UK STERLING: Pound to Euro (GBPEUR) Remains Close to 22 Month Best Exchange Rate Level

A surprisingly high reading from yesterday's UK Consumer Price Index inflation figures saw the Pound to euro (GBP/EUR) exchange rate climb as it ramped the pressure on the Bank of England to countenance an increase to domestic interest rates.

The monthly CPI price rise figure was expected to show that the rate of UK inflation had increased slightly to 1.6% last month.

When the actual figure printed at 1.9%, market rumours regarding a near-term increase to Base Rate started to take hold. The resultant forward move for the Sterling (currency:GBP) saw the Pound to Euro exchange rate climb to within spitting distance of its 21-month high; the pair peaked at 1.2629 a little earlier and analysts forecast that there could be further gains to come for the Pound Euro in the near-term.

The higher than anticipated UK inflation numbers were viewed by investors through the prism of recent comments from Bank of England Governor Mark Carney who stated during his closely-monitored Mansion House speech a few weeks ago that the decision to hike the cost of borrowing in the UK, when it comes, would be ‘data-driven’. The market has inferred from the domestic price rise numbers that UK interest rates could now be on their way Northwards this side of Christmas. Adam Cole of Royal Bank of Canada concurred with this view, stating earlier that the inflation numbers, ‘should work towards lifting U.K. rate expectations, which is clearly why sterling is taking it positively. We would see value in expressing that view in the currency at these kind of levels.’

Sterling Euro Gains on Several Factors

Elsewhere, today’s forward movement for the Pound to Euro exchange rate was not wholly driven by the positive UK inflation numbers.

This morning’s whole of eurozone and German ZEW Sentiment Surveys for July both came in well below analysts’ expectations, showing at 48.1 and 27.1 respectively versus anticipated showings of 58.4 and 28.2. The disappointing nature of the numbers is likely to weigh heavily on the single currency moving forward, making a near-term increase in the GBP EUR exchange rate to a fresh 21-month high a likely prospect.

Forecast - Watch Friday's Euro-zone CPI

The next risk event of note, as far as euro-watchers are concerned, comes on Friday in the form of the latest whole of eurozone CPI inflation numbers. If they hint that the euroland economy is slipping towards a potentially damaging bout of deflation, then look for the Pound Euro exchange rate to spiral towards the 1.3000 threshold sooner rather than later.

GBP/EUR Update 16/07/2014

The Pound Sterling (GBP) looks set to push even higher against the Euro on Wednesday as economists expect today’s unemployment data for the UK to come in strongly. Sterling continues to find support from yesterday’s strong inflation data and expectations that the Bank of England will raise interest rates before year’s end.

Euro & Pound Exchange Rates Today - Updated 17th July 2014 at 11:00 GMT

The Pound to Euro exchange rate is down -0.16% at 1.26484 GBP/EUR.
The Euro to Pound exchange rate is trading up +0.16% at 0.79062 EUR/GBP.
The Euro to US Dollar exchange rate is trading up +0.01% at 1.35288 EUR/USD.
The US Dollar to Euro exchange rate is trading down -0.01% at 0.73916 USD/EUR.
The US Dollar to Pound Sterling exchange rate is trading up +0.16% at 0.58440 USD/GBP.

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