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Pound Euro exchange rate rocked by hot UK inflation, German recession

The Pound Euro exchange rate witnessed some sharp swings over the past week, following the publication of the UK’s consumer price index and Germany’s latest GDP figures. 

UK inflation figures infuse volatility into Sterling 

The Pound Euro exchange rate got off to a slow start this week, with the single currency being subdued following weaker-than-forecast Eurozone consumer confidence, with Sterling’s upside potential being limited by a lull in data. 

The release of the UK and Eurozone’s latest PMI figures then pulled GBP/EUR lower at the start of Tuesday’s session. As the Eurozone PMIs outperformed the UK releases. 

But the Pound was quick to find its feet again after the International Monetary Fund upgraded its UK growth forecast for 2023. 

The GBP/EUR exchange rate briefly struck a new year-to-date high immediately following the UK’s latest CPI figures. A smaller-than-expected fall in headline inflation, coupled with a shock jump in core inflation last month helped to fuel expectations for a June interest rate hike from the Bank of England (BoE). 

However, these gains proved very short lived, with the pound subsequently falling amid UK growth fears and the Euro strengthening amid a prevailing risk-off mood. 

The second half of the week then saw another 180 as a downwards revision to German first quarter growth, saw the Euro plummet as the Eurozone’s largest economy slipped into a technical recession. 

Closing out the session was the UK’s latest retail sales figures, where a stronger-than-expected rebound in sales growth last month helped to buoy Sterling. 

Eurozone inflation in the spotlight 

Turning to next week’s session the focus will be on the Eurozone’s latest CPI figures as EUR investors seek to gauge the odds of further ECB rate hikes. 

Analysts predict May’s preliminary CPI figures will show inflation in the bloc continued to cool. With consensus estimates that headline inflation will decelerate from 7% to 6.5%. 

While this may not deter the ECB from raising interest rates at its June policy meeting, the Euro could weaken if it stokes speculation the bank will be less likely to tighten monetary policy any further than this. 

Meanwhile, the UK data calendar is looking pretty sparse next week, which could leave the Pound to trade without any strong directional bias throughout the session. 

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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