The GBP to EUR exchange rate was 0.15% higher on Tuesday as the market awaits German employment data. Inflation data from Europe’s largest economy in light bank holiday trading was 0.2% higher than expected as price pressures rise in the developed economies.
The GBP to EUR trades at 1.1636 and a move above the 1.1650 level could see the pair at 1.17.
German Inflation at Highest Since 2018
German inflation has risen to 2.4% in May, which marks the highest rate in over two years. The data is another hint that the ultra-loose monetary policy in developed economies could see overheating in prices.
The federal statistical agency reported on Monday that consumer prices had reached a level last seen in October 2018, largely due to a 10% year-on-year increase in energy prices.
Travel prices have also surged after lockdowns were lifted and package holiday prices rose by around 7%. Commerzbank said of the holiday issue: “It is obvious that the demand for travel and other leisure activities is increasing significantly with the easing of the anti-corona measures, thus providing scope for price increases.”
The German data joins other nations such as the UK, US, and Canada who are seeing traders question the ultra-low interest rate expectations for the next two years.
German Employment Should Drive Pair
The latest German employment data is released on Tuesday and that should drive the price of the pound to euro as traders return from the bank holiday.
Markets are expecting a loss of -9k jobs from Germany and the unemployment rate is expected to stay stuck at 6%.
Data agency Destatis has said that after a year of the pandemic, there is no real recovery in the labor market. The lifting of the lockdowns is helping to see confidence return to business owners, as seen in recent sentiment data, but that is not spreading out to the larger economy and the services sector is not seeing the damage repaired quickly. The UK is in a similar position but has been given a head start by the reopening in the UK. The pound could be moving further ahead on the euro but the government are potentially slowing the last phase of the reopening due to the Indian virus variant.
Susan Michie, professor at UCL and a member of the Scientific Pandemic Insights Group, said: “We’re on a knife edge. We could go either way with this new variant. The new variant could just run away with itself, as it did with the Kent variant before Christmas which would be extremely serious and we would have to have more restrictions.”
The GBPEUR saw a high of 1.1800 in early-April, but the price saw a sharp unwind as the travel hopes faded for Britons. The pair is now close to 1.1650 and could see a move to 1.17 if the latest data is negative for the euro.
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