- Pound (GBP) is rising for a fifth day
- OBR warn of 3% innflation
- Euro (EUR) is falling as oil prices rise
- German inflation eases to 2%
The Pound-Euro (GBP/EUR) exchange rate is rising for a fifth straight day. The pair rose 0.06% in the previous session, settling on Tuesday at €1.1557. It traded between €1.1541 and €1.1573. At 18:30 UTC on Tuesday, GBP/EUR trades 0.33% higher at €1.1595.
The pound is rising on Wednesday for a fifth straight day as investors continue to weigh up the impact of the war in the Middle East and its potential effect on UK inflation. According to an official at the Office for Budget Responsibility, UK inflation could end the year at around 3%, rather than the 2% previously expected by fiscal forecasters, if energy prices remain at current levels.
While the impact is material, it is not expected to be on the same scale as that experienced during the Russian invasion of Ukraine. However, it is worth noting that volatility in energy prices caused by the conflict in the Middle East brings high levels of uncertainty. If oil prices fall over the next four to five weeks to levels seen before the US and Israel attacked Iran, the impact on CPI would likely be very limited.
However, the market is no longer expecting the Bank of England to cut interest rates by 25 basis points this month. Indeed, there are concerns that the central bank could be forced to hike rates before the end of the year if energy prices remain elevated for a prolonged period.
The euro is falling as investors continue to assess the potential impact of higher energy prices on the eurozone economy and digest German inflation data. Data showed that inflation in the eurozone’s largest economy eased slightly in February to 2%, down from 2.1% year-on-year in January.
However, markets are largely looking through the inflation data, given that higher oil and energy prices could begin feeding through into CPI from next month. The ECB was not expected to move on interest rates this year, but the rise in energy prices has raised questions about the central bank’s next move. Policymakers have said that the next move could be a rate hike, although they are in no rush to make such a decision.