EUR GBP Could Head Lower After Recent Price Failures

The EUR GBP exchange rate was flat on Wednesday, but the pair surrendered earlier gains to trade near the yearly lows. The euro could dip further versus the pound sterling after recent price bounces have failed. Today saw inflation figures for the UK and Europe released, with a slight dip in the UK rate taking some of the steam out of the UK rate hike expectations.

The EUR to GBP is trading at 0.8425 and the pair will see consumer confidence tomorrow, before UK retail sales on Friday.

UK sees dip in inflation for September but likely temporary

The latest figures from the ONS said that UK inflation had dipped on the month to 3.1% from 3.2%. The news failed to dent support for the pound as the move is expected to be temporary when the recent fuel problems are factored into the October measure.

Petrol prices have driven much of the rise in September, with the cost of fuels and lubricants up 17.8% for the year. In September, prices at the pump hit 134.9 pence, their highest in eight years.

Brian Madderson, Chairman of the Petrol Retailers Association, says that the previous records are “almost certain to be eclipsed before the end of October”.

“Current average pump prices across the UK are being softened by some of the largest retailers who typically benefit from a 3 or even 4-week lag to their delivered fuel prices,” he said.

The Bank of England are expected to hike rates with projections as early as November for a rate lift-off, but today’s figures may cool that expectation.

Governor Bailey said the bank “will have to act,” but economist and former MPC member, Danny Blanchflower, said officials would be ‘foolish’ to raise rates so soon and could force the economy back into a recession.

Investment banks, JP Morgan and Goldman Sachs, have both forecast a November rate hike ahead of today’s inflation data.

International Monetary Fund doesn’t see inflationary issues in Europe

The International Monetary Fund doesn’t see Europe being dragged into an inflationary spiral, despite prices rising at their fastest rate in 13 years last month.

IMF European Department Director Alfred Kammer said that the surge in energy costs should fade in 2022, Reuters reported.

“We don’t at this stage, expect any inflation spiral in Europe. The high inflation which we are seeing right now is really driven by an increase in energy prices, and we expect that to fade out during 2022.”

Krammer added that labour market slack means inflation is unlikely to push up wages:

“Generally, the underlying inflationary momentum in the euro area is just not there,” he added.

The European Central Bank are behind the UK on the rate hike path and that is fueling support for the pound sterling in recent trading sessions.

The EUR v GBP has the next targets at the 2020 lows near the 0.8300 level.

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Source: https://www.eurorateforecast.com/2021/10/eur-gbp-could-head-lower-after-recent-price-failures/