ExchangeRates.org.uk - At the time of writing, GBP/EUR traded at around €1.1871, virtually unchanged from Thursday’s opening rate. The Euro (EUR) slumped against the majority of its peers on Thursday following the release of Germany’s latest inflation data. The yearly figure fell from 2.3% to 1.9%, behind a more modest 2.1% expectation, while the European Central Bank (ECB)’s preferred inflation reading (the harmonised rate) dropped from 2.6% to 2.0%, hitting the ECB’s target. Falling inflation in the Eurozone’s largest economy a day ahead of the bloc’s own inflation reading ramped up ECB rate cut bets, undermining the common currency following the release.
Carsten Brzeski, Global Head of Macro at ING, said: ‘If confirmed by tomorrow’s eurozone inflation data, today’s German data should make the decision to cut interest rates at the September meeting a bit easier for the ECB. Fading inflationary pressure combined with fading growth momentum offer an almost perfect macro backdrop for another rate cut.’
Pound (GBP) Slips amid Economic Pessimism
Although rangebound against its European counterpart, the Pound (GBP) weakened against the majority of its peers on Thursday amid a continued lull in UK data releases. Amid another data-light trading session, Sterling remained hobbled by fresh concerns over the UK’s economy on Wednesday. Following a speech from UK Prime Minister, where we warned of a ‘painful’ upcoming Autumn Budget, GBP exchange rates slipped.Analysts at ING commented on the upcoming Budget and said: ‘Very much in focus now is UK Chancellor Reeves’ first budget at the end of October. There is much speculation over £20bn of tax increases coming through – worth around 0.7% of GDP. However, this may not represent fiscal tightening since she will be using the money to address the real-terms cut in public spending under the previous Conservative government.’
GBP/EUR Forecast: Eurozone CPI in the Spotlight
Looking ahead, the primary catalyst of movement for the Pound Euro exchange rate on Friday will be the publication of the Eurozone’s preliminary consumer price index (CPI). Augusts’ headline figure is forecast to fall, expected to cool from 2.6% to 2.2%. Should the data match expectations and confirm that headline inflation is also moving closer towards the European Central Bank’s (ECB) 2% target, this will likely act as a headwind for the single currency should the data ramp up ECB rate cut bets further. Looking at the Pound, domestic data will remain absent from Friday’s data-calendar, and as such will likely leave Sterling rudderless once again. However, should Thursday’s upbeat trading conditions extend into Friday’s European session, GBP could be lifted thanks to its nature as an increasingly risk-sensitive currency.This content was originally published on ExchangeRates.org.uk
