The GBP to EUR exchange rate has made its move to break above the 1.1280 resistance level. The price level has capped any gains in pair since June of last year and could open the door to a larger advance in sterling.
GBPEUR was trading higher by 0.10% in early Thursday trading and the pair is hovering near the 1.1300 level.
UK and Europe See Differing Inflation Paths
The economic data this week has confirmed that the British and European economies are on different paths when it comes to inflation. Yesterday saw core inflation in the UK coming in at 1.4% which was a tick higher from the 1.3% expected by analysts. There was a similar move higher in consumer prices in the country.
The EU picture is more deflationary with German inflation this week staying stuck at -0.3%, while the Eurozone number came in as expected at 0.2%. The move higher in the UK numbers will ensure that the Bank of England do not rush into further action on stimulus measures or interest rate hikes. The bank’s governor had already stated this following the Brexit deal signing and the rise in prices will see the BoE waiting until the economy is closer to opening up.
The Eurozone economy is more prone to seeing further rate cuts or stimulus measures due to the flat prices in the region and officials have talked of euro strength being a headwind. It’s possible that the bank takes some form of action to cool the currency’s strength.
ECB Meeting Today Will Guide Traders
The European Central Bank meets today to announce if they will make a move on interest rates or add to the current stimulus. The ECB previously expanded its Pandemic Emergency Purchase programme to 1.9 trillion euros in a bid to fire up the economy, but the bank has seen little spark.
Interest rates in the Eurozone are stuck near zero and the next path would be negative rates, which is likely if the virus continues to keep the economy shut down. The ECB may not make any move at this meeting, but they may seek to put a bearish tone on the euro. The bank has previously been unhappy with the euro’s effect on the low inflation rates. Central banks tend to use currency intervention as a last resort, but the press conferences are closely watched and its hard to see the euro advancing too far from current levels.
The Bank of England also release a quarterly outlook today and GBP to EUR traders will have a very clear idea on the path of the exchange rate for the near-term. If the pound can hold the recent gains above resistance then the advance should continue through the first quarter.
If you have an upcoming currency transfer and would like to learn more about the factors impacting pound or euro exchange rates, contact myself, James Lovick, using the form below.