Pound to Euro Exchange Rate Strikes Four-Week Low as Eurozone Inflation Beats Forecasts

November 1, 2024 - Written by John Cameron

STORY LINK Pound to Euro Exchange Rate Strikes Four-Week Low as Eurozone Inflation Beats Forecasts

The Pound Euro (GBP/EUR) exchange rate plunged on Thursday after hotter-than-forecast Eurozone inflation saw the single currency surge.

At the time of writing, GBP/EUR traded at €1.1856, down 0.6% on the day.

The Euro (EUR) surged on Thursday following the release of the Eurozone’s latest consumer price index, which surpassed expectations.

Preliminary CPI data for October revealed that Eurozone inflation accelerated more than anticipated, climbing from 1.7% to 2%, outpacing forecasts of 1.9%. Core inflation remained unchanged at 2.7%, defying predictions of a slight decrease to 2.6%.

This unexpected rise in inflation came on the heels of a stronger-than-expected GDP report on Wednesday, which indicated that Eurozone growth picked up in the third quarter, increasing from 0.2% to 0.4%.

Consequently, markets reduced their expectations for interest rate cuts by the European Central Bank (ECB), driving the Euro higher.

The increasingly risk-sensitive Pound (GBP) slipped against the safe-haven Euro on Thursday amid market fears that global borrowing costs would remain elevated for longer than hoped.

This sentiment was bolstered by the Eurozone's CPI exceeding expectations and the US core PCE price index, the Federal Reserve's preferred inflation gauge, also coming in higher than anticipated.

Additionally, the UK government's Autumn Budget, announced on Wednesday, sent UK gilt yields soaring. Chancellor Rachel Reeves announced a significant increase in borrowing, and upward revisions to inflation forecasts led many to speculate that the Bank of England (BoE) might slow its pace of policy easing.

While the reduced expectations for BoE rate cuts could be seen as a positive for the Pound, worries about high UK government borrowing and the broader risk-averse market sentiment both put downward pressure on GBP on Thursday.

Looking forward, the Pound Euro exchange rate may experience a calm finish to an otherwise turbulent week on Friday. Significant market-moving data becomes scarce on both sides, potentially leaving GBP and EUR investors to pause and reassess their positions.

However, next week is expected to be eventful again, with key German data scheduled for release and the Bank of England poised to announce its latest interest rate decision. Although the BoE is anticipated to cut rates, their forward guidance could provide a lift to the Pound if policymakers express more caution about future rate cuts in light of the recent budget.

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TAGS: Pound Euro Forecasts