GBP/EUR: Pound Rallies Ahead Of BoE Announcement
  • Pound (GBP) gained on Tuesday supported by last week’s hawkish BoE
  • UK Q2 GDP data due tomorrow
  • Euro (EUR) edged lower after a sharp drop in German economic sentiment data
  • German CPI data due

The Pound Euro (GBP/EUR) exchange rate is edging lower paring gains from the previous session. The pair settled 0.14% higher on Tuesday at €1.1808 after ticking as high as €1.1834 a fresh 18 month high.  At 05:45 UTC, GBP/EUR trades -0.07% at €1.1801.

The Pound advanced in the previous session. The Pound has traded on the front foot since England lifted lockdown restrictions last month as investors remain optimistic that the economic recovery will remain on track.

Last week the Bank of England hinted that monetary policy could be tightened sooner than expected as it raised its inflation forecasts to 4% by the end of the year.

There is no high impacting UK macro-economic data for investors to digest. Attention will turn towards tomorrow’s UK GDP reading for the second quarter.

The Euro came under pressure on Tuesday as economic sentiment wanes in the Eurozone. The German ZEW economic sentiment data dropped sharply in August to 40.4 down from 63.3 in July. Analysts had been expecting sentiment to decline to 55.1. This marked the third straight month of declines.

In the Eurozone bloc, things weren’t much better with economic sentiment index for Eurozone falling from 61.2 to 42.7.

Concerns over a potential fourth COVID wave in the autumn is hurting economic confidence. COVID numbers in Germany have been steadily climbing higher and are expected to rise even further as people return from holiday. Global supply chain issues and uncertainty over next month’s national elections are adding to the downbeat outlook.

Looking ahead investors will focus on German inflation data. Analysts are expecting consumer prices to confirm a 0.5% month on month rise in July. On an annual basis CPI is set to confirm a 3.1%, this will mark the first time since 2008 that inflation has exceeded 3%.

Despite high inflation the ECB are not expected to move on tightening policy insisting that the spike in inflation is temporary.