GBP EUR Higher Ahead of ZEW Sentiment Data

The GBP EUR exchange rate was 0.30% higher on Monday as the pair found a reprieve from last week’s selling. The pound sterling versus the euro was higher ahead of the latest ZEW sentiment data from Europe and Germany. In the UK Prime Minister Boris Johnson is dealing with legal dramas over the Owen Paterson situation and the Northern Ireland Brexit protocol.

The GBP to EUR has tested the 1.1700 level once more after a recent bout of weakness.

Bailey reiterates rate hike call after destroying hike bets

The Bank of England governor Andrew Bailey has reiterated his recent comments that the bank will have to act if it sees higher inflation.

“What we’re concerned about … is once you start to get an increase in inflation of this sort we want to stop it becoming generalised in the economy,” Bailey said on Monday.

His comments come after a previous statement led to expectations of a rate hike in November which fell flat at last week’s meeting. That led to another repricing of expectations and a slump in the pound sterling.

Bailey added that was a risk of more bottlenecks in the economy, especially in labor demand for which could push inflation higher.

“And that’s why we would, and will, have to act on interest rates if we see that evidence becoming clear,” he said.

Germany awaits ZEW sentiment while inflation tensions loom

The higher-level economic date for the GBP v EUR kicks off today with ZEW Economic Sentiment for Europe and Germany.

The German number has plummeted from a high of 84.4 in May and is expected to be 20 today. Economists saw a peak in the economic rebound and now see further problems with supply chain bottlenecks and staff shortages.

The supply chain issues have caused the costs of raw materials to soar and the composite input prices index climbed to 73.2 from 70.9, the highest since the survey began in mid-1998.

“Inflation will peak at 4.5 percent. That is very high but likely to abate over the course of next year, we already see promising signs in container shipping for instance,” said Holger Schmieding at Berenberg.

The supply chain issues saw growth slowing in Germany for a third month and it was a similar picture in France, Spain and Italy.

Meanwhile, the German FPD leader Christian Lindner, a contender for the next German finance minister, warned against the ECB’s lax monetary policies and called on Christine Lagarde to adopt the US approach.

He said: “The fact that the ECB seems to be acting differently than the US Federal Reserve at the moment may, unfortunately, underpin my fear.”

Germany is looking for a more aggressive approach to tackle inflation and wind down stimulus. But European Central Bank Vice President Luis de Guindos has hinted that the central bank is seeing a change in expectations.

He said that while inflation will slow next year, “the intensity and speed of the decline may not be what we expected a few months ago.”

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