EUR/GBP holds steady below 0.8350 ahead of German CPI inflation data
- EUR/GBP flat lines near 0.8330 in Thursday’s early European session.
- BoE policymakers support a gradual policy-easing approach.
- The preliminary German CPI inflation data for November will be in the spotlight on Thursday.
The EUR/GBP cross holds steady around 0.8330 during the early European session on Thursday. The cautious stance and reduced bets of the Bank of England's (BoE) cutting interest rates in December provide some support to the Pound Sterling (GBP) and drag the cross lower.
The BoE officials remain cautious on rate reductions. The BoE Deputy Governor Clare Lombardelli supported the case of BoE pauses easing at the December meeting, citing that “I do worry [that] we still have services inflation in this country consistently at levels above their pre-Covid average, well above rates that are consistent with the [2%] inflation target.” Lombardelli further stated that she needs to see more evidence of cooling price pressures before she backs another interest rate cut.
The European Central Bank (ECB) policymakers express concerns about the Eurozone's current and future economic growth. The rising speculation that the ECB will have to implement aggressive interest rate cuts to prop up the faltering regional economy could weigh on the Euro (EUR) against the GBP in the near term.
Traders brace for the preliminary German Consumer Price Index (CPI) for November, which is due on Thursday. The annual CPI inflation is expected to rise to 2.2% in November from 2.0% in the previous reading. If the report shows a hotter-than-expected outcome, this could underpin the shared currency.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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