Pound Edges Higher vs. Euro On BoE Optimism
  • Pound (GBP) lifted by vaccine rollout & inflation data
  • UK CPI +0.7% YoY vs 0.5% expected
  • Euro (EUR) pressurized by stronger USD
  • ECB minutes & Consumer confidence

The Pound Euro (GBP/EUR) exchange rate is edging a few pips lower on Thursday. The pair settled +0.2% higher on Wednesday at €1.1503 after trading as high as €1.1523 earlier in the session a 10 month high. At 05:15 UTC, GBP/EUR trades -0.05% at €1.1497. The pair is on track to gain over 0.7% so far this week.

The UK consumer price index rose to 0.7% year on year in January, up from 0.6% in December and ahead of he 0.5% that economists had predicted. Prices rose as food and household goods drove prices higher, whilst clothing and footwear fell in price.

Inflation has been stuck below the Bank of England’s 2% target since mid-2019. The covid pandemic pushed inflation close to zero. However, there are signs that inflation is getting back on track. The BoE expects inflation to rise sharply towards its 2% target in spring when the emergency VAT cut ends as oil process could rise.

There is no major economic data due to be released today. The Pound will continue to receive support from the rapid vaccine rollout which should mean the UK is among the first economies to reopen.

The Euro slumped sharply lower on Wednesday owing to US Dollar strength. As investors priced in a strong economic recovery and an acceleration of inflation in the US, demand for the US Dollar surged and the Euro plunged.

The outlook for the Euro remains weak amid a slow vaccine rollout out programme which means that the time table for reopening the economies and returning to a level of normalcy is pushed out even further.

The minutes from the latest ECB meeting are due to be released today. The meeting was relatively uneventful given the big moves made in December so no surprises are expected.

Looking ahead Eurozone consumer confidence data, the preliminary reading for February is expected to show a very marginal improvement to -15 from -15.5.