GBP/EUR: Pound Rallies Ahead Of BoE Announcement
  • Pound (GBP) fell on Monday despite strong labour market data
  • UK CPI expected to rise to 1.8% YoY
  • Euro (EUR) boosted by weak USD & high German inflation
  • US Fed rate decision could move Euro

The Pound Euro (GBP/EUR) exchange rate is edging higher after two days of decline. The pair settled -0.2% lower on Tuesday at €1.1612 after briefly dropping below €1.16. At 05:45 UTC, GBP/EUR trades +0.05% at €1.1617.

The Pound came under pressure on Tuesday despite upbeat UK labour market data. The UK unemployment rate ticked lower to 4.7% in the three months to April, down from 4.8% in March. Unemployment continues to trend lower which is a good sign. However, the real impact of the pandemic lockdowns on the labour market will become clearer in Autumn when the furlough scheme comes to an end.

The payroll data was also strong with 197,000 jobs added in May compared to April. The record number of jobs come as companies raced to hire ahead of the re-opening of inside hospitality on 17th May.

Attention will now turn to UK inflation numbers as measured by the consumer price index. Analysts are expecting inflation to rise to 0.3% month on month on May, up from 0.6% in April. On an annual basis, CPI is expected to rise 1.8%, up from 1.5% as it ticks closer to the Bank of England’s 2% target.

The Euro gained ground in the previous session thanks in part to a weaker US Dollar and to strong German inflation numbers.

German CPI came in at 2.4% year on year in line with the preliminary reading. This is above the European Central Bank’s target of 2% and the highest level since 2018. The data could intensify the debate of whether the ECB maintaining an ultra-loose monetary policy could allow the bloc’s largest economy to overheat.

There is no high impacting Eurozone data due to be released today. All eyes will be on the US Federal Reserve rate decision. The US Dollar could experience high levels of volatility. Given that the Euro often trades inversely to the US Dollar, the common currency could also see some big swings.