• Pound (GBP) declines despite surging CPI inflation
  • UK unemployment data in focus
  • Euro (EUR) rises on the back of US Dollar weakness
  • No high impacting Eurozone data is due

The Pound Euro (GBP/EUR) exchange rate is edging lower on Thursday for a second straight session. The pair settled 0.2% lower on Wednesday at €1.1705 after hitting a fresh 3 month high of €1.1762 earlier in the session.  At 05:45 UTC, GBP/EUR trades -0.09% at €1.1695.

The Pound came under pressure in the previous session despite UK inflation surging higher. Inflation as measured by the consumer price index jumped to 2.5% year on year in June, up from 2.1% in May. This was well ahead of the 2.2% forecast by analysts. On a monthly basis, inflation rose 0.5% in June compared to May. This was down slightly from 0.6% in May, but significantly above the 0.2% forecast.

The Bank of England believe that UK inflation will rise to 3% by the end of the year. However, the central bank also believe that the rise inflation will be temporary and as such are not rushing to tighten monetary policy.

Attention now will turn to the UK labour market which is expected to show that the unemployment rate held steady in May at 4.7%. With the government’s furlough support ongoing, the real impact of the pandemic on the labour market is still being masked. The furlough scheme is set to end on Autumn. The UK unemployment rate is expected to tick higher then.

The Euro gained ground versus its major peers on Wednesday thanks to a tumbling US Dollar. The US Dollar dropped sharply lower in the previous session after US Federal Reserve Chair Jerome Powell told Congress that the US economic recovery still had a way to go until the Fed would consider tightening monetary policy. The Euro trades inversely to the US Dollar.

There is no high impacting Eurozone data due to be released today. So sentiment is likely to drive movement in the Euro. Concerns over the spread of the delta variant of covid could be in focus.