Pound-Euro could rebound if UK inflation revives Bank of England rate hike bets, while hawkish ECB signals may keep Euro support intact.
The Pound to Euro (GBP/EUR) exchange rate faced modest selling pressure on Tuesday, following the publication of the UK’s latest jobs data.
At the time of writing, the GBP/EUR exchange rate was trading at around €1.1688. Moderately down from the start of Tuesday’s session.
DAILY RECAP:
A downbeat set of employment statistics left the Pound (GBP) struggling on Tuesday, as signs of cooling in the UK jobs market sapped Sterling sentiment.
Figures released by the Office for National Statistics (ONS) revealed that the domestic jobless rate stayed flat at 4.9% in June, missing expectations for a drop to 4.8%.
The stagnation came as hiring activity slowed markedly, with job creation coming in at roughly half the pace recorded in May.
Adding to the pressure, June’s report showed wage growth losing momentum, as regular earnings growth slowed from 4.4% to 4.1%.
This left Sterling to soften as GBP investors trimmed expectations that the Bank of England (BoE) might raise interest rates sometime in 2026.
The Euro (EUR) caught bids on Tuesday with the release of Germany’s latest ZEW economic sentiment index.
August’s index reported a stronger-than-expected improvement in sentiment, with morale in the Eurozone’s largest economy being bolstered by suggestions the government’s previous fiscal reforms are starting to be felt by survey respondents.
However, the upside in Euro ultimately remained limited, with demand for the single currency being tempered by its strong negative correlation with the US Dollar (USD).
Near-Term GBP/EUR Forecast: Rising inflation to boost Sterling?
Turning to Wednesday’s session, attention shifts to the UK consumer price index, which could provide fresh impetus for the Pound Euro exchange rate.
Consensus forecasts suggest inflation accelerated in July as a resumption of hostilities in the Gulf pushed up energy prices, with this rise potentially reviving BoE rate hike speculation and lifting Sterling in mid-week trade.
Of course, if inflation undershoots expectations again, it could trigger greater weakness in the Pound.
For EUR investors, the focus will turn to a scheduled speech from European Central Bank (ECB) President Christine Lagarde, who could push the Euro higher if her comments strike a hawkish note.
Our currency coverage draws on live market data, official economic releases and published bank research.
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