Pound Euro Exchange Rate News: GBP/EUR Rangebound as Eurozone Inflation Soars

Modified: Tuesday, 31 May 2022 12:35 BST - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Rangebound as Eurozone Inflation Soars

GBP/EUR Rangebound as Eurozone’s Inflation Hits Record High

The Pound Euro (GBP/EUR) exchange rate is trading in a narrow range today as the Eurozone’s consumer price index overshot market forecasts in May. Meanwhile, the Pound (GBP) is under pressure from ongoing cost-of-living concerns.

At the time of writing, the GBP/EUR exchange rate is trading at approximately €1.17, virtually unchanged from today’s opening levels.

Euro (EUR) Subdued as Eurozone Inflation Soars to Record High

The Euro (EUR) is subdued against the Pound today as the Eurozone’s latest preliminary consumer price index report inflation in the bloc struck a record high for the seventh consecutive month.

In May, inflation jumped to 8.1% up from 7.4% in April and ahead of a forecast 7.7% rise.

This is also significantly above the European Central Bank’s (ECB) target rate of 2%. This has reinforced ECB interest rate expectations and is offering some support to the Euro. EUR investors are currently split to whether the ECB will pursue a 25bps or 50bps hike in July.

According to ECB Governing Council member Francois Villeroy de Galhau, the ‘May inflation figures confirm our expectations for an increase and need for progressive monetary normalisation.’

Moreover, the preliminary figures revealed that rising energy prices remain the key driving force of high inflation amid the ongoing Russia-Ukraine war.

Today, EU leaders have agreed to ban Russia oil imports.

Russia supplies the EU with 40% of its gas imports and 27% of its oil, raising fresh concerns over European energy security and suppressing the Euro.

Pound (GBP) Mixed amid UK Cost-of-Living Concerns

The Pound is trading in a narrow range against the Euro today as the UK’s cost-of-living crisis remains a key concern for GBP investors.

The UK Chancellor Rishi Sunak announced a £15bn fiscal stimulus package last week, as part of the government’s efforts to minimise the sharp rise in energy prices since the start of the year.

In response, some GBP investors have increased their Bank of England (BoE) rate hike bets, particularly following a hawkish speech from BoE Governor Andrew Bailey last week.

However, Commerzbank’s economists remain wary, stating:

‘The market seems to be of the view that the spending package might cause interest rates in the UK to raise more.

‘But of course, the BoE might have something to say on that too. Moreover, it will have to be seen first whether the fiscal policy measures are suited to preventing a stronger economic downturn.

‘We remain cautious as regards sterling and assume that the BoE will not tighten its monetary policy as much as the market expects and that high inflation levels will put pressure on sterling over the coming months.’

Furthermore, Prime Minister Boris Johnson’s position remains under pressure following the publication of Sue Gray’s ‘partygate’ report.

It has been reported that another Conservative MP has submitted a letter of no confidence to the 1922 committee. As the number of known letters climbs closer to 30, Johnson’s premiership is in ‘real trouble’ according to former Conservative leader, William Hague.

As a result, demand for the Pound is downbeat.

GBP/EUR Exchange Rate Forecast: Will Lagarde Strike a Hawkish Tone?

Looking ahead, the Pound Euro exchange rate may be influenced by a speech from ECB President Christine Lagarde.

Will some hawkish comments from Lagarde boost EUR exchange rates?

Furthermore, the single currency may be bolstered by the Eurozone’s latest unemployment figures. In April, unemployment across the bloc is forecast to ease from 6.8% to 6.7%.

Meanwhile, due to a lull in notable UK economic data, the Pound is likely to remain primarily driven by UK political developments.

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TAGS: Pound Euro Forecasts