Pound Euro Exchange Rate News: GBP/EUR Rangebound as Eurozone’s Inflation Overshoots Forecast

February 2, 2022 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Rangebound as Eurozone’s Inflation Overshoots Forecast

GBP/EUR Muted as Eurozone Inflation Increases

The Pound Euro (GBP/EUR) exchange rate is trading in a narrow range today, in response to Eurozone’s inflation rising higher than predicted.

At the time of writing, the GBP/EUR exchange rate is trading at approximately €1.1986, with minimal market movement from today’s opening levels.

Euro (EUR) Mixed Amid Higher-Than-Forecast Inflation

Meanwhile, the Euro (EUR) is rangebound against the Pound (GBP) following the publication of the Eurozone’s latest inflation reading.

Surprisingly, inflation in Januaryrose rather than slowed down, reaching a new record high.

It printed at 5.1%, up from the previous month’s 5% and significantly higher than the predicted 4.4%.

This is twice the European Central Bank’s (ECB) set target of 2%.

Tomorrow, ECB will deliver its latest interest rate decision, with the bank forecast to leave rates unchanged at 0%.

Although the ECB has previously shrugged off the idea of tightening monetary policy, the high inflation may force the bank to reconsider.

Bloomberg Economics said:

‘Hawks are gaining ground in the debate about policy, and the fear of getting behind the curve on rates and inflation means the bar for action is getting lower.

The fundamental outlook for inflation is little changed, but we expect some acknowledgment of the higher near-term concern about inflation to feature at Thursday’s policy meeting.’

This may bolster EUR’s potential throughout today’s session as some optimistic investors may turn to the single currency before tomorrow’s decision.

Pound (GBP) Trading Flat as Investors Await BoE Decision

The Pound (GBP) is subdued against the Euro (EUR) this morning as investors shy away from Sterling ahead of the Bank of England (BoE)’s interest rate decision.

On Thursday, the BoE is to publish a monetary policy statement following the latest interest rate announcement. Currently, BoE is expected to raise interest rates from 0.25% to 0.5%, which has been largely priced-in.

However, a hawkish policy outlook from the BoE is likely to boost the Pound.

Meanwhile, Boris Johnson, the UK Prime Minister, remains under pressure as many Conservative MP’s are publically announcing their Votes of No Confidence.

Johnson did little to provide answers to MP’s questions during yesterday’s session which has caused frustration throughout his government.

This comes following the publication of Sue Gray’s edited report and the ongoing enquiry into the ‘partygate’ scandal, led by the Met Police.

Conservative MP, Tobias Ellwood, said:

‘I don’t think the Prime Minister realises how worried colleagues are in every corner of the party, backbenchers and ministers alike, that this is all only going one way and will invariably slide towards a very ugly place.

‘I believe it’s time for the Prime Minister to take a grip of this; he himself should call a vote of confidence rather than waiting for the inevitable 54 letters to be eventually submitted.

‘It’s time to resolve this completely so the party can get back to governing, and, yes, I know the next question you will ask, I will be submitting my letter today to the 1922 Committee.’

As the UK’s political landscape remains unstable, it is weighing on the Pound’s appeal.

GBP/EUR Exchange Rate Forecast: BoE Interest Rate Decision Takes Spotlight

Looking ahead, the Bank of England (BoE)’s interest rate decision will be a fundamental catalyst in the Pound Euro (GBP/EUR) exchange rate.

In addition, the European Central Bank (ECB)’s interest rate decision may bolster EUR, should the ECB strike a more hawkish tone following today’s inflation reading.

The geopolitical unrest between Russia and Ukraine, as well as the UK’s political uncertainty may also cause movement in the pairing.

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TAGS: Pound Euro Forecasts