GBPEUR Looks to Inflation for Direction

The GBPEUR exchange rate dipped below 1.16 again after the market took a cautious approach to the jobs numbers. The UK saw half the expected job losses and dip to 4.9% in unemployment, but there was some weakness in payroll numbers. Today will see the latest update on inflation from the UK and that will give some insight into the last pre-opening price pressures.

The GBP v EUR is trading at 1.1575 after finding support at 1.15 last week.

UK inflation to drive the pound v euro

This morning will bring the latest inflationary data for the UK with core inflation expected to rise to 1.1% from 0.9%. The headline number is also expected to jump, from 0.4% to 0.8%.

The numbers will give traders some insight into the potential for price pressures in the coming months. Footfall at retail establishments has picked up again and the further the country moves to a July opening the more it could see inflation move higher. The UK is in a new situation where it may also see limited foreign travel and higher domestic holiday spending and that could affect the inflation rate also.

The European Medicines Agency (EMA) told reporters on Tuesday that there was a small risk of blood clots with the Johnson & Johnson vaccine on Tuesday. They added that the “benefits outweighed the risks” and that they could still be used. This puts the vaccine in a similar place to the AstraZeneca one but some countries, such as Denmark have backed away from its use.

ECB expectations for Thursday

The European Central Bank meets on Thursday and will announce their latest interest rate and monetary policy measures. The bank will not make any move on rates which have been stuck at zero since the start of the virus and will likely not make any moves on stimulus.

The bank finds itself in a quiet period where economic shocks have subsided, and it is hoped that the continent will reopen after the second quarter. The bank’s chief Christine Lagarde has said recently that they will allow inflation to pick up if it is in line with growth in the Eurozone. That statement means that they take no action until a reopening was seen to affect prices in the region, but with France locked down and other nations flirting with higher cases, that doesn’t look to be the third quarter at least. If there was another issue in bond markets that saw yields rising, then the bank would step in with further stimulus.

Markets have eased up on ECB rate expectations since the end of 2020, where they were pricing in a 10-bps cut in July 2021. Those expectations have been pushed further out with only a 15% chance of a cut seen in December 2021.

The GBPEUR sees a range between the 1.15 – 1.16 levels and this will determine whether the sterling rally continues, or if the euro can regain some of the recent ground.

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