Pound-to-Euro Forecast: GBP Steady As Eurozone Inflation Meets Expectations

The Pound to Euro (GBP/EUR) exchange rate traded in a tight range on Tuesday as Eurozone inflation data broadly matched expectations and failed to provide fresh momentum for the single currency.

At the time of writing, GBP/EUR was trading around €1.1559, little changed on the day.

DAILY RECAP:

The Euro (EUR) enjoyed mixed trading conditions on Tuesday after the latest Eurozone inflation figures landed broadly in line with market forecasts.

Data showed headline inflation accelerated from 3.0% to 3.2% in May, matching expectations, while core inflation rose from 2.2% to 2.5%, slightly exceeding forecasts for a 2.4% increase.

While the figures confirmed that price pressures remain elevated across the Eurozone, the data did little to materially alter expectations for European Central Bank policy.

Markets continue to anticipate further ECB interest rate increases over the coming months, but Tuesday’s inflation report offered little new information to drive additional Euro buying.

As a result, the single currency was able to outperform some weaker peers but struggled to generate broader gains.

Meanwhile, the Pound (GBP) lacked any meaningful domestic catalyst as the UK economic calendar remained quiet.

Sterling instead took its cues from wider market sentiment.

The improving risk backdrop helped the increasingly risk-sensitive Pound outperform traditional safe-haven currencies, although gains were limited against growth-linked and higher-beta peers.

With investors awaiting fresh economic data later in the week, GBP/EUR remained largely rangebound through the European session.

GBP/EUR Forecast: Services PMIs and Eurozone Producer Prices in Focus

Looking ahead, attention will turn to the final services PMI releases from both the UK and Eurozone.

Markets expect both economies to show a deterioration in service-sector activity during May.

The Eurozone survey is forecast to indicate that activity remained in contraction territory, while the UK services PMI is expected to confirm a sharp fall from 52.7 to 47.9, signalling the first contraction in over a year.

Should the preliminary readings be revised, currency markets could react accordingly.

Sterling may remain vulnerable if UK services activity proves weaker than expected, while the Euro could find support if Eurozone data surprises to the upside.

Investors will also monitor Eurozone producer price inflation figures.

A stronger-than-expected increase in factory gate prices could reinforce expectations that inflation pressures remain persistent and potentially support the Euro through increased ECB tightening expectations.