GBP/EUR: Brexit and UK Inflation Affects Pound vs Euro
  • Pound (GBP) rises on Brexit & vaccine optimism
  • UK CPI inflation expected to -0.1% MoM
  • Euro (EUR) trades mixed versus peers as ECB look to ease monetary policy in December
  • EZ CPI inflation expected to +0.1% MoM

The Pound Euro (GBP/EUR) exchange rate is extending gains on Wednesday. The pair settled +0.3% higher on Tuesday at €1.1160, towards the high of the day. At 05:15 UTC, GBP/EUR trades 0.1% at €1.1166.

The Pound surged in the previous session and remains well supported on Brexit optimism and comments from Bank of England policy makers.

With 43 days to go until the Brexit transition period ends and just days until a Brexit trade deal needs to be agreed, reports circulated that the EU and the UK are closing in on an agreement. A report on Bloomberg pointed to a deal being announced on Monday or Tuesday of next week.

The Pound gained ground across the board on the news, as a trade deal would mean that the UK would avoid leaving the EU on unfavourable WTO terms, right in the middle of the covid pandemic.

Bank of England policy makers also under pinned the Pound. Both BoE Governor Andre Bailey and Ramsden highlighted that a covid vaccine is a huge step forward for the UK economy.

Today investors will focus on inflation data for further clues over the health of the UK economy. Analysts expect disinflation of -0.1% month on month in October, down from +0.4% in September. A weak reading could drag on sterling.

The Euro traded mixed versus its major peers. On the one hand it is supported by the vaccine news. However, on the other covid cases in Europe continue rising with France becoming the first country in the region to record 2 million cases.

Speeches by European Central Bank policy makers including President Christine Lagarde have pointed to additional monetary easing in the December meeting. This has capped any gains in the Euro.

Attention will now turn to Eurozone consumer price inflation data. Analysts are expecting CPI +0.1% MoM in October, in line with September.