Pound to Euro Rate Lower as Traders Await EU Inflation

A Rollarcoaster Week for GBP EUR - Weekly Review June 18th 

The pound to euro exchange rate was lower on Thursday as traders await the latest core inflation data from the Eurozone. The inflation level in Europe has been hovering around the zero level and the bloc risks a Japanese-style “lost decade” with heavy central bank purchases of bonds and little growth.

Bank of England Governor has warned of an $80 billion hit to the UK economy from Brexit but the figures are hard to quantify in a country that is still closed for business to the rest of the world.

GBPEUR was trading 0.10% lower at 1.1030 with support for sterling at 1.09-1000 if the euro gains, while Monday’s highs near 1.1200 would be the target for the pound.

Inflation Data Will Dominate the Trading Day

Economic data was lacklustre yesterday for the German, UK and Eurozone economies with Purchasing Manager’s Index (PMIs) coming in lower-than-expected. UK PMIs just held the key 50 level, while the EU release was still contracting with a reading of 49.1. Inflation from Germany came in as expected with a reading of -0.3%. The Eurozone’s largest economy is seeing deflationary pressures and the ongoing lockdowns will put further pressure on the country.

Eurozone core inflation is released today and the market is looking for a reading of 0.2%. This would be unchanged from the previous month and adds to the deflationary tone in Europe.

The European Central Bank (ECB) was critical of euro strength at the end of 2020 and officials talked of currency intervention. If inflation remains subdued then the bank may seek to talk the euro lower or to use monetary policy.

UK Seeks Vaccine Boost for Flailing Economy

Boris Johnson said yesterday that there was “no choice” but to continue the government’s lockdown strategy as the country faces a “sprint” to vaccinate the most vulnerable in the population.

The Prime Minister also said that seven large vaccination venues would be launched next week to fast track an exit from the recent shutdown. The Commons was recalled from the holiday recess for the second time to debate the most-recent lockdown and MPs will retrospectively vote on the measures announced by Johnson at the start of the week. Labour said they would vote for the lockdown measures and the UK reported the highest count of fatalities since April, for those recorded within 28 days of a positive test.

Sterling is seeking a boost after the final approval of a Brexit deal saw little follow-through for the currency. The Bank of England Governor Andrew Bailey answered MPs questions yesterday and said the trade deal could end up costing the UK economy up to £80 billion pounds. This was claimed despite the Governor admitting that the expectations for a big jobs exodus was overstated.

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