The Pound to Euro (GBP/EUR) exchange rate went on a sharp upward trajectory as the headline UK inflation rate exceeded forecasts for the month of December.
A Solid Boost Across the Board
Investors were persuaded to buy back into the pound following the strengthening of the inflation rate from 0.3% to 0.6% on the year. They’re also counting on the absence of any imminent policy action from the Bank of England (BoE).
The case for future monetary loosening measures appeared to diminish with the resurgence of inflation, offering GBP exchange rates a solid boost across the board.
Meanwhile, the Euro was left on a weaker footing against many of the major currencies following confirmation that the Eurozone consumer price index remained locked in negative territory.
Building anticipation ahead of Joe Biden’s inauguration also led to a general improvement in market risk appetite which helped shore up the GBP/EUR exchange rate.
Euro to Take a Hit by Dovish ECB Comments
The Euro could suffer a further hit on Thursday if the European Central Bank (ECB) takes on a dovish tone at its January policy announcement.
At this stage, there are no expected changes in monetary policy, yet EUR exchange rates could still contend with selling pressure if policymakers express any uncertainty over the economic outlook.
Indications that the ECB expects to see only fairly muted Eurozone growth in the next few months may leave the Euro vulnerable to another bout of selling pressure. On the flip side though, the EUR exchange rates could be given a boost by policymakers if their decision is not sufficiently dovish. The EUR can avoid losing further ground if the markets see reason to bet that the central bank will not act to loosen monetary policy again in the near future.
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