Pound-Euro could give back some recent gains if Eurozone inflation accelerates sharply, although Sterling remains supported near two-month highs.
The Pound to Euro (GBP/EUR) exchange rate struck a fresh two-month high on Thursday as Sterling consolidated its recent gains amid signs the UK government may seek to strengthen its relationship with the EU.
At the time of writing, the GBP/EUR exchange rate was trading at around €1.1719. Up roughly 0.2% from the start of Thursday’s session.
Pound to Euro (GBP/EUR): 1.171417 (+0.04%)
Euro to Dollar (EUR/USD): 1.130841 (-0.17%)
DAILY RECAP:
The Pound (GBP) remained well supported on Thursday, with Sterling consolidating its recent gains on the prospect of the UK potentially rejoining the EU.
This follows remarks made by Prime Minister Andy Burnham earlier in the week, in which he claimed Brexit has ‘done more harm than good’ as he called for the UK to consider a range of options on its future relationship with the EU, from maintaining the current arrangements to joining a customs union or the single market, or even ‘go all the way’ by rejoining the EU.
Despite any potential rejoining of the EU still being years away, the subsequent upswing in Sterling highlights how damaging the FX market still views Brexit, with investors hoping that a reduction in UK-EU trade barriers would be a net positive for economic growth.
At the same time, Sterling was also supported ahead of a speech by Bank of England (BoE) policymaker Catherine Mann on the expectation that one of the bank’s most hawkish members would talk up the prospect on a rate hike next month.
The Euro (EUR) struggled to attract any meaningful support on Thursday as it continued to be buffeted by its negative correlation with the US Dollar (USD).
Despite a collapse in the odds of a Federal Reserve interest rate hike later this month, USD demand continues to build ahead of key upcoming US data.
Near-Term GBP/EUR Forecast: Surging Inflation to Lift the Single Currency?
Turning to the end of the week, the Pound Euro exchange rate may be forced to relinquish some ground with the publication of the Eurozone’s latest consumer price index.
September’s preliminary CPI figures are expected to report inflation in the bloc accelerated to a three-year high of 3.6%.
Signs that inflation pressures within the Eurozone are continuing to build may help to revive European Central Bank (ECB) rate expectations and allow the Euro to claw back some of its recent losses at the end of the week.
Meanwhile, the absence of any notable UK data, the Pound’s fortunes will remain tied to the ‘Burnham bounce’ and wider currency trends.
Our currency coverage draws on live market data, official economic releases and published bank research.
