The Pound-Euro could find support if UK data outperforms, while hotter Eurozone inflation may revive ECB rate-hike bets and bolster the single currency.
The Pound Euro (GBP/EUR) exchange rate edged up on Tuesday as the UK and the EU agreed a deal to ease rules on food imports and exports.
At the time of writing, GBP/EUR was trading at €1.1989, up marginally on the day.
Pound to Euro (GBP/EUR): 1.198726 (+0.04%)
Euro to Dollar (EUR/USD): 1.119406 (+0.02%)
DAILY RECAP:
The Pound (GBP) found modest support on Tuesday as the UK and the EU agreed a deal to remove Brexit checks on food and animal products.
The agreement is expected to be a boon to British food exporters, and sets a positive tone ahead of the UK-EU reset summit on 20 November, with GBP investors hoping that closer ties between Britain and the bloc will help to boost UK economic growth.
However, Sterling’s upside potential was limited. An uptick in UK government borrowing costs removed a key pillar of support for the Pound, as gilt yields have been easing ever since last week’s Autumn Budget.
The fresh uptick in yields was largely due to a jump in oil prices after the US reportedly struck Iran’s Qeshm Island on Monday.
Meanwhile, the Euro (EUR) was largely muted on Tuesday amid a lack of market-moving Eurozone economic data.
Wider market trends left EUR uncertain. The Euro’s strong negative correlation with the US Dollar (USD) provided little direction, as USD exchange rates wavered, while a mixed market mood added to the unclear trajectory.
EUR investors may also have been hesitant to place aggressive bets on the common currency ahead of Wednesday’s inflation figures.
Near-Term GBP/EUR Forecast: Eurozone Inflation to Support the Euro?
Looking forward, the key data release on Wednesday will be the Eurozone’s latest consumer price index.
October’s flash CPI is expected to show that inflation accelerated across the Eurozone last month, rising from 3.8% to 4%. If it prints as expected, it could offer EUR a lifeline by boosting European Central Bank (ECB) interest rate hike bets.
Before the inflation figures, we also have the final October services PMIs for both the Eurozone and the UK. Confirmation of a slowdown in Eurozone activity and an acceleration in UK activity could support the Pound Euro exchange rate.
Our currency coverage draws on live market data, official economic releases and published bank research.
