Pound Euro (GBP/EUR) Exchange Rate Wavers as UK Inflation Prints Hotter-Than-Anticipated

October 19, 2022 - Written by John Cameron

STORY LINK Pound Euro (GBP/EUR) Exchange Rate Wavers as UK Inflation Prints Hotter-Than-Anticipated

Pound Euro (GBP/EUR) Exchange Rate Muted as UK Inflation Beats Forecasts

The Pound (GBP) saw mixed trade against the Euro (EUR) on Wednesday, as UK inflation data came in above expectations.

This saw the GBP/EUR exchange rate trading at around €1.1486, showing little movement from Tuesday’s opening rats.

Pound (GBP) Weakens as Gas and Electricity Prices Push Up Inflation Rates

The Pound (GBP) weakened against most peers on Wednesday, as the UK’s inflation data came in hotter-than-expected.

The YoY inflation rate rose from 9.9% to 10.1%, going back to the highs seen in July 2022. This forecast-beating result came as a consequence of ever-increasing energy and food prices in the UK.

As such, the news weighed on the Pound in Wednesday’s session as it demonstrated just how difficult conditions are for the average person as the UK’s cost-of-living crisis continues.

Jack Leslie, the Senior Economist at the Resolution Foundation, explored this stating: ‘Surging food prices have driven a return to double-digit inflation across Britain and high inflation looks set to stay with us for some time too, with accelerating services producer price inflation and the early end of the Energy Price Guarantee likely to put upward pressure on consumer prices next year. This bleak outlook means that family incomes will continue to fall sharply again next year, especially as support with energy bills is withdrawn.’


While investors would normally welcome such an increase in inflation as they usually predicate further interest rate hikes from central banks, investors are more preoccupied with how the rise reflects upon the current political turbulence in the UK.

The key point of contention is the Government’s lack of commitment to the triple lock pension plan, which in conjunction with rising inflation. Due to this, support for Prime Minister Liz Truss dropped further, and has placed a heavy strain on GBP during Wednesday’s session.

Euro (EUR) Muted by Sour Market Mood

Wednesday saw the Euro (EUR) lack direction, with the single currency experiencing mixed trade during the session.

The chief catalyst of this mixed trade came from EUR’s negative-correlation with the US Dollar (USD), which clipped the currency's potential gains. The US Dollar saw a boost due to the risk-off market mood. As such, the Euro was unable to make gains against weakening currencies such as the Pound.

Pressure also came with the downward revision of the bloc’s YoY inflation rate for September. Inflation was revised down from 10% to 9.9%, and while a modest dip, could have prevented investors from expecting higher rate hikes from the European Central Bank (ECB).

The Euro was further muted by continuing developments in the Ukraine-Russia conflict. The Russian commander of the Russian troops in Ukraine signalled that civilians were being evacuated from Kherson, ahead of an expected attack from Ukrainian troops.

Pound Euro (GBP/EUR) Exchange Rate Forecast: Will Further Political Turbulence in the UK Effect the Pound?

Looking ahead, the core catalyst of movement on the GBP/EUR exchange rate is likely to be political volatility within the UK.

Liz Truss’ premiership seems tenuous, with both unrest in her party and resentment from the public continuing to develop. Any further developments, such as a poor showing in Wednesday’s PMQs, could inject fresh volatility into the Pound.

Further ahead, Friday sees the release of the UK’s retail sales data for September. If the data prints below expectations for the second consecutive month, GBP could be dented.

For the Euro, Thursday brings the release of German PPI data. With a sharp drop from 7.9% to 1.3% expected, this could buoy the Euro should the data print as expected.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Euro Forecasts