GBP/EUR: Will Eurozone Inflation Data Boost Pound vs. Euro?
  • Pound (GBP) falls despite higher inflation
  • BoE under pressure to keep hiking rates
  • Euro (EUR) rises, supported by hawkish ECB talk
  • Eurozone consumer confidence is due

The Pound Euro (GBP/EUR) exchange rate is edging lower on Wednesday after small losses in the previous session. The pair gained 0.05% yesterday, settling at €1.1659, after trading in a range between €1.1611 – €1.1674. At 09:45 UTC, GBP/EUR trades -0.2% at €1.1635.

The pound is falling despite inflation rising. UK inflation, as measured by the consumer price index rose to 9.1% year on year in May, up from 9% in April and 7.4% in March. This is the highest level of inflation in 40 years.

Meanwhile, core inflation, which strips out food and fuel fell to 5.9% year on year down from 6.2% in April and below forecasts of 6%.

Surging inflation mounts pressure on the Bank of England to hike interest rates faster. Yesterday BoE policy market Cather Mann supported a 50 basis point rate hike in order to combat inflation from the weaker pound. Her views were similar to those of Chief Economist Hew Pill earlier in the week. Pill suggested that it was necessary to keep hiking fast and firmly even at the cost of sending the UK into recession.

The UK economy contracted in March and April and a recession is looking increasingly more likely.

There is no more high-impacting UK data due today. BoE policymaker Cunliffe is due to speak and could shed more light on the probability of a 50-basis point hike.

The euro held steady in the previous session, supported by hawkish European Central Bank speakers. However, the market is still waiting for further details on the anti-fragmentation tool that the ECB are designing.

Today, the euro continues to gain ground today as investors look ahead to the release of Eurozone consumer confidence data.

Consumer morale in the bloc is expected to rise slightly to -20.5, up from -21.1, despite inflation rising to a record high.