The GBPEUR exchange rate is trading above the 1.1700 level for the first time since April as traders react to the expectations for higher UK inflation. The European core inflation figure was also higher, but the UK has a head start on reopening and that will pressure the Bank of England first.
The GBP to EUR is trading just higher than 1.17 and the April highs at 1.18 are the upside target.
European Inflation Beats Expectations
The Eurozone was the latest economy to see higher inflation with the core inflation number printing at 1%. The market had expected a 0.9% number after 0.7% in the previous month in another sign of rising prices as the economies reopen.
The European numbers are lagging that of the UK, which saw a jump of 0.5% above market expectations in the previous day. The UK economy has seen a faster reopening and that is playing into the figures.
Inflation is a concern for central banks after the US and Canada also posted higher numbers in the week and there are some market jitters around prices. Higher oil is one example of pressure on prices, while clothing has been another. The ECB has said it is too early to discuss winding down stimulus and they will have some time to sit on their hands.
The Bank of England may have to face questions in the upcoming speeches and meetings after the UK figures of 2.1% breached its 2% target for the first time in two years. The US Federal Reserve said on Wednesday that it might raise interest rates sooner than previous projections as the United States economy improves.
More lockdown threats for UK
Experts in the UK are again sending warnings that a third wave of coronavirus infections has already started in the UK and that lockdown rules may have to return.
“We’re at the beginning of the third wave now,” said an Imperial epidemiologist. The UK has seen the number of daily virus infections move past 10,000 for the first time since February, as the upward trend continues in cases.
Chief medical officer Chris Whitty also said the current surge would “definitely” translate into hospital admissions and “undoubtedly” further deaths. Graham Medley said that it was “not impossible” restrictions would have to be reintroduced.
Further, an internal NHS email which was seen by Channel 4 has told hospitals to brace themselves for a third peak in early August. The email said hospitals “are preparing for a third wave” and added “the peak is expected to be the 1st of August”.
Prime Minister Boris Johnson has stalled the UK’s reopening until the 19th July, which is close to the August date and could see restrictions reintroduced as summer winds down.
The GBP v EUR will look to test the 1.18 highs, but further lockdowns would be a headwind.