The GBPEUR exchange rate was -0.11% lower on Wednesday despite trading at the highest level since early April after inflation data. Traders may be reacting to a surge in virus cases and the UK will also see employment data today.
The GBP to EUR traded at 1.1758 on Wednesday, which was close to the 1.18 highs after inflation nudged further ahead of the BoE’s target.
Inflation soars again in the UK
The UK inflation rate has jumped close to a three-year high as consumer prices accelerated on the lockdown easing, according to data on Wednesday.
The Consumer Prices Index hit 2.5% for June and beat analysts’ expectations of a 2.2% rise, the ONS said, only a day after prices surged in the US. The UK rate was the highest since August 2018, with prices heating up from the economy’s phased reopening as well as soaring fuel and oil prices.
“Inflation rose for the fourth consecutive month to its highest rate for almost three years,” said Jonathan Athow of the ONS.
“The rise was widespread, for example coming from price increases for food and for second-hand cars where there are reports of increased demand. Some of the increase is from temporary effects, for example rising fuel prices which continue to increase inflation, but much of this is due to prices recovering from lows earlier in the pandemic.”
An increase in clothing and footwear prices also added to the price increases and the trend puts pressure on the Bank of England with the bank saying that 3% inflation was possible. The index could get there sooner than expected.
The US inflation reading was double that of the UK with a 5.4% print for the month of June.
UK sees 42,000 virus cases
The pound sterling gave up gains against the euro and likely because of the continued rise in virus figures, with the UK seeing 42,302 new cases, which is the highest daily figure since mid-January.
That may be tempered by rising cases in Europe, with Italy reporting 2,153 cases and that was up sharply from 1,534 the previous day.
The pound was also hit by the fact that 1,200 scientists had written a letter to a medical journal urging a government rethink of the July 19th reopening.
A group of doctors and health experts wrote to The Lancet to raise their issue over the proposed rule changes. The statement said that the planned relaxation, “involves recklessly exposing millions to the acute and long-term impacts of mass infection. We believe this is a terrible mistake.”
Sterling has been buoyed by the planned removal of all restrictions but that has coincided with the surge in cases, which is putting a headwind on the pound’s ability to move higher.
Thursday sees the release of the latest employment data for the pound and that could be another catalyst to get to the yearly highs for the pound versus the euro. The UK is expected to post 90k new jobs for April.