Pound Euro exchange rate jumps on stronger-than-expected UK inflation figures

The Pound Euro exchange rate strengthened this week after the UK’s latest inflation figures bolstered Bank of England (BoE) interest rate expectations. 

Pound spikes as hot UK inflation bolsters BoE rate hike bets 

The Pound Euro exchange rate opened this week on the front foot. While Sterling struggled to find moment ahead of some high-impact UK data, the Euro’s negative correlation with the US Dollar resulted in EUR exchange rates weakening. 

GBP/EUR then traded sideways on Tuesday after the UK’s latest jobs report made for mixed reading. While wage growth proved more resilient that expected, a shock rise in unemployment spooked GBP investors.  

At the same time the euro was subdued after Germany’s ZEW economic sentiment index surprised to the downside in April. 

The middle of the week then saw the Pound soar following the release of the UK’s consumer price index. Hotter-than-expected figures reported domestic inflation remained in double digits in March. 

This turbocharged BoE rate hike speculation, with Sterling jumping as some analysts began to predict UK interest rates would rise as high as 5% by the end of 2023. 

The GBP/EUR exchange rate then faltered at the end of the week in response to a larger-than-expected contraction in UK retail sales and the Eurozone’s slightly stronger PMI figures. 

Slump in Q1 GDP to undermine the Euro? 

Looking ahead, the highlight of next week’s data calendar looks to be the Eurozone’s latest GDP figures. 

The preliminary estimate for the first quarter is widely expected to report the Eurozone economy contracted 0.2%, after stalling at the end of 2022. Such a result could pull EUR exchange rates lower at the end of the week. 

The end of the week will also see the publication of Germany’s latest CPI report, where falling inflation could weaken ECB rate hike bets and add to the pressure on the single currency. 

In the meantime, Germany’s IFO business climate index could provide some support to the single currency at the start of the week if it reports improving conditions in April. 

In contrast to this week, there are only mid-tier UK data releases next week, with the latest surveys from the Confederation of British Industry perhaps providing modest support if they print positively. 

If you’ve got a GBP/EUR currency transfer to arrange, the team at TorFX are on hand to help. Get started now to access bank-beating exchange rates and fast, free transfers. 

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