GBPEUR Bounces on Inflation Update

The GBPEUR exchange rate is 0.16% higher on Wednesday after the UN saw inflation move higher. The ONS figures showed that the inflation rate in Britain climbed to 0.7% from 0.4% despite the lockdowns. The move was tempered by the fact that analysts had expected it to be slightly higher.

GBPEUR trades near 1.1600 again and the ECB interest rate announcement tomorrow will keep traders quiet until then.

Virus hit to prices starts to recede

British inflation numbers were higher in March as oil prices remained elevated and retailers recovered from the deep pricing discounts seen in the February numbers. The numbers will now be expected to climb higher as the lockdowns lift in the UK and consumers rush back to the high street.

Consumer prices rose to 0.7% in March from 0.4% in the previous month, but this was higher than forecasts of 0.8%. Jonathan Atlow, statistician at the ONS said:

“The rate of inflation increased with petrol prices rising and clothes recovering from the falls seen in February”.

The BoE said in February that the inflation rate would reach 1.9% by the end of 2021, some economists expect that it could surpass the bank’s target before then. That could force the bank to act on bond yields if it threatens to stifle the country’s exit from the pandemic lockdowns.

The Bank of England forecast in February that inflation would reach 1.9% by the end of 2021 but many economists now expect it will exceed its 2% target before then. Over that period, the BoE saw less upside pressure on prices because of jobs market weakness. Yesterday’s unemployment rate highlighted a drop in payroll numbers and the ongoing furlough is helping to prop up prices.

UK virus rates continue to drop

The UK has seen the lowest daily virus-related fatality rate in seven months after four people were seen with coronavirus as a contributor. Monday’s number was the lowest since September 7^th.

The numbers will increase pressure on Prime Minister Boris Johnson to reopen the economy fully.

The ECB will announce its latest monetary policy and interest rate decisions on Thursday, and this could keep a lid on any pound v euro movement ahead of time. The bank is unlikely to change anything and will be happy that economic instability has decreased. The bank’s President Christine Lagarde has said that the bank will allow inflation to move higher if it is in line with the continent’s growth and that is likely to be slow with the vaccine rollout and reopening timetable.

Inflation will likely move higher after the middle of the year, but it would be the end of the year before the bank had to act on any adverse movements in the bond market.

The GBPEUR will continue to move in the current range between 1.15 and 1.16 and the ECB is unlikely to trouble that range unless there is a signal for further stimulus from the European central bank.

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