The Pound to Euro (GBP/EUR) exchange rate traded in a narrow range on Wednesday as mixed UK inflation data failed to provide Sterling with a clear direction, while investors awaited the European Central Bank’s latest policy decision.
At the time of writing, GBP/EUR was trading around €1.1718, down approximately 0.1% on the day.
DAILY RECAP:
The Pound (GBP) was muted on Wednesday, with the UK’s latest consumer price index leaving Sterling without a clear directional bias.
Headline inflation cooled more than forecast in June, easing from 2.8% to 2.6%, below expectations for a reading of 2.7%.
However, core inflation unexpectedly held steady at 2.6%, rather than slowing to 2.5%.
These mixed figures did little to materially alter Bank of England (BoE) interest rate expectations, resulting in subdued trading for the Pound.
Meanwhile, Sterling also faced uncertainty surrounding how new Prime Minister Andy Burnham intends to fund some of his recently announced policies.
Burnham, who entered Number 10 on Monday, quickly unveiled measures aimed at easing the cost of living, although markets continued to question how they would be financed.
Meanwhile, the Euro (EUR) also traded quietly amid a lack of fresh Eurozone economic data and ahead of Thursday’s European Central Bank (ECB) policy announcement.
With no major data releases and the ECB meeting looming, EUR investors were reluctant to place aggressive directional bets.
Near-Term GBP/EUR Forecast: ECB Hawkish Hold to Lift the Euro?
Looking ahead, the spotlight on Thursday will fall squarely on the European Central Bank’s latest interest rate decision.
While policymakers are widely expected to leave rates unchanged, investors will closely scrutinise the ECB’s forward guidance.
If the bank signals that further interest rate hikes may still be required, particularly in light of rising energy prices, the Euro could strengthen.
As for the Pound, the Confederation of British Industry’s latest business optimism index and industrial trends orders survey are due for release. Improvements in both may offer Sterling modest support.
However, political developments may remain the dominant influence. If markets continue to question how Burnham’s cost-of-living measures will be funded, the Pound could remain under pressure.
