Pound Euro News: GBP/EUR Holds 1.207, Upside Limited Despite Rising UK Inflation
The British Pound held strong against the Euro on Wednesday after UK inflation exceeded forecasts.
The Pound to Euro exchange rate (GBP/EUR) rose on Wednesday morning after the UK’s latest consumer price index exceeded expectations, although government borrowing fears limited Sterling’s upside.
At the time of writing, GBP/EUR was trading at €1.207, a modest uptick on the day and just shy of a near seven-week high hit overnight.
The Pound (GBP) ticked higher on Wednesday following the UK’s hotter-than-expected CPI figures.
The new data showed that headline inflation jumped from 2.5% to 3% in January, above forecasts of 2.8%. Meanwhile, core inflation rose from 3.2% to 3.7%.
These figures came hot on the heels of Tuesday’s jobs data, which showed wage growth accelerating to an eight-month high in the final quarter of 2024.
In response, markets trimmed their expectations for Bank of England (BoE) interest rate cuts, thereby supporting Sterling.
However, fresh concerns over rising government borrowing costs seemed to cap GBP’s upside. UK government bond yields – the interest rate on government debt – leapt following the CPI release.
Meanwhile, the Euro (EUR) was muted on Wednesday amid a lack of Eurozone economic data.
In addition, markets were uncertain about the situation in Ukraine. The previous optimism around a ceasefire deal had given way to uncertainty, with a rift opening up between the US and Europe.
US President Donald Trump had raised hopes in Europe of an end to the Russia-Ukraine war, offering to broker the peace deal.
However, since then European leaders and Ukrainian President Volodymyr Zelenskyy have felt sidelined as the US holds direct talks with Russia.
New remarks from Trump worried European leaders on Wednesday, as the US President seemed to blame Ukraine for the conflict, saying that Zelenskyy ‘should have never started it’.
Looking forward, Eurozone data on Thursday could impact the common currency.
A rise in German producer price inflation in January could support EUR, while an expected improvement in Eurozone consumer confidence this month could also be positive for the Euro. However, these mid-tier releases will likely only provide limited tailwinds.
The only data out for the Pound on Thursday is another mid-tier release, the Confederation of British Industry’s (CBI) industrial trends orders. Another deeply negative reading could put modest pressure on the Pound.
Meanwhile, Ukraine news could continue influencing the pairing. Could growing concerns around a US-brokered deal see EUR soften?
Adam Solomon
Contributing Analyst
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