GBP/EUR: Brexit Nerves Weigh On Pound
  • Pound (GBP) eases after CPI misses forecasts
  • UK CPI slipped to 3.1%
  • Euro (EUR) resilient after inflation hits 13 year high
  • Eurozone consumer confidence next

The Pound Euro (GBP/EUR) exchange rate edging a few ticks lower on Thursday. The pair settled +0.08% on Wednesday at €1.1863 after refreshing a 20-month high of €1.1874 earlier in the session. At 05:45 UTC, GBP/EUR trades -0.07% at €1.1854.

The pound rallied despite UK inflation data unexpectedly easing in September. The cost of living in the UK as measured by the consumer price index ticked lower to 3.1% year on year, down from 3.2% in August. Analysts had expected a 3.2% increase.

However, the reprieve in inflation is not expected to last long with the BoE forecasting inflation to reach 4% by the end of the year. Many of the factors contributing to elevated inflation such as supply chain issues, rising energy costs and labour shortages are unlikely to be resolved soon.

As a result, the slip in inflation is unlikely to push the central bank off its more hawkish path. The BoE is expected to raise interest rates as soon as this year.

Rising covid cases could take the shine off the Pound. Pressure is mounting on Prime Minister Boris Jognson to take some action as new daily cases almost reach 50,000.

The Euro was also well supported in the amid a rise in inflation. Consumer prices rose 3.4% in September, up from 3% in August. Core inflation which strips out more volatile items such as food a fuel rose to 1.9%, up from 1.6% in August. However, this is still below the ECB’s target 2%.

The ECB, unlike the BoE are in no apparent rush to start hiking interest rates. ECB speakers quickly talked down the prospect of a rate rise.

Today, all eyes will remain on the Eurozone economic calendar with the release of Eurozone consumer confidence data for October. Morale is expected to have eased a touch lower to -5, from -4 as prices rise and supply chain disruptions hit.