• Pound (GBP) jumped on strong CPI data
  • Inflation above BoE’s 2% target
  • Euro (EUR) dragged lower by surging US Dollar
  • Eurozone CPI data due

The Pound Euro (GBP/EUR) exchange rate is advancing for a second straight session. The pair settled +0.45% higher on Wednesday at €1.1661, just off the high of the day of €1.1675, a level last seen in early June. At 05:45 UTC, GBP/EUR trades +0.03% at €1.1665.

The Pound jumped higher in the previous session after data revealed that inflation surged in May. Inflation, as measured by the consumer price index (CPI) rose 0.6% month on month in May, up from 0.3% in April and double the 0.3% level that analysts had anticipated.

On an annual basis, CPI rose to 2.1%, up from 1.5% in April and ahead of the 1.8% forecast. This means that inflation is above the Bank of England’s 2% target, raising the chances of the central bank tightening monetary policy.

Meanwhile, covid cases continue to rise in the UK with 9000 new daily infections, the highest number since February. With no UK macro data for investors to sink their teeth into covid developments could be under the spotlight.

The Euro came under pressure on Wednesday as the US Dollar charged higher following the Federal Reserve monetary policy announcement. The Euro often trades inversely to the US Dollar.

The US central bank upgraded its growth and inflation forecasts for the US and signaled that an interest rate rise could be coming in 2023, sooner than the 2024 initially expected. The Fed’s improving assessment of the US economy and its slightly more hawkish stance boosted the US Dollar, dragging on the Euro.

Attention will now turn to Eurozone inflation figures. Consumer prices in May are expected to rise by 0.3% month on month, down from 0.6% in April. On an annual basis inflation is expected to hit 2%, the ECB’s target level. A stronger than forecast print could boost expectations that the ECB will move towards tightening policy sooner rather than later, particularly after German inflation hit 2.4%.