The GBPEUR exchange rate was higher on Wednesday despite Eurozone inflation showing a jump back into positive territory. The data showed Eurozone consumer prices rising for the first time since July.
The GBP to EUR is flat for the day at the halfway point of the European session, but sterling is still holding onto recent gains near the 1.1350 level.
European Inflation a Boost for ECB
The latest Eurozone inflation release for January has shown consumer prices rising for the first time since July 2020 according to Eurostat. The figures were driven by rising costs in the bloc’s largest economy, Germany.
Inflation saw a jump to 0.9% as the bloc finally mounted a recovery from months near deflationary territory. The core inflation rate was also higher at 1.4% for the reading that removes volatile commodities such as food and energy. France and Spain also saw rising consumer prices and the number will give the European Central Bank hope that the higher euro is no longer an obstacle. Inflation is still far from the bank’s 2% target, but it is a step in the right direction after threatening to intervene in the currency last year.
The stronger pound in January will have helped to ease pressure on exports from the Euro countries and this will be a factor for the year ahead as the UK economy settles into its own trading arrangements. The Eurozone inflation didn’t come without cost as the ECB injected 1.85 trillion euros of stimulus into the bond market.
Traders Now Await the Bank of England
The GBP to EUR rate is now pausing ahead of the latest Bank of England interest rate announcement tomorrow. The euro should maybe have seen buyers emerge with the inflation numbers, but nobody is willing to place large bets ahead of the BoE announcement. The bank is expected to hold rates steady and they will release their latest quarterly outlook and thoughts on stimulus.
Once this event is out of the way, GBPEUR traders should have a clear path for the exchange rate outlook in the weeks ahead. The key data will be seen for the next few weeks and the pair will move back to virus events and economic recovery expectations.
The pound has benefited from the UK government’s efforts in administering vaccines and the economy could be on a path to open up ahead of the EU countries. A phased opening could also be possible for less affected regions. The only obstacle to this is the latest talk of virus mutations but this would be a headwind for both the euro and the pound.
If the Bank of England hold off on further stimulus and are bullish on the economy tomorrow, then we could see the GBPEUR make a further move to resistance at 1.1500.
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