Pound to Euro Rate Today: Above 1.17 as Low Volatility Offsets UK Inflation

March 20, 2024 – Written by John Cameron


The Pound to Euro exchange rate (GBP/EUR) briefly dipped to 1.1685 after the latest inflation data before a recovery to 1.1710.

ING expects Thursday’s Bank of England decision will be crucial in determining whether GBP/EUR can attack 1.1765 resistance.

The slightly lower-than-expected inflation data nudged markets towards a Bank of England interest rate cut in June rather than August.

A lack of overall volatility in currency markets, however, continued to provide net support for the UK currency and the Euro has remained generally on the defensive.

The UK year-on-year inflation rate declined sharply to 3.4% for February from 4.0% previously and slightly below consensus forecasts of 3.5%.

Although monthly prices increased 0.6%, the annual rate was dragged lower by favourable base effects given that prices increased 1.1% in February 2023.

Paul Dales, chief UK economist at Capital Economics, commented; “A lot of this was due to more normal changes in prices this February following unusually large price rises last February.”


This was the lowest headline rate since September 2021.

The core rate declined to a 2-year rate of 4.5% from 5.1% and also marginally below market expectations of 4.6%.

The largest downward contributions came from food, and restaurants and cafes, while the largest upward contributions came from housing and household services, and motor fuels.

Prices for food and non-alcoholic beverages rose by 5.0% in the year to February 2024 from 6.9% in January, the lowest reading since January 2022.

The goods inflation rate declined to 1.1% from 1.8% while the services rate retreated to 6.1% from 6.5%.

At the wholesale level output prices increased 0.4% in the year to February while input prices declined 2.7% over the year.

Following the data, traders priced in 71 basis points of rate cuts by the end of the year from 66 basis points ahead of the data.

There are no expectations of a rate cut at this week’s meeting, but markets do consider a June rate cut is slightly more likely.

Martin Beck, chief economic advisor to the EY ITEM Club, expects further sharp inflation declines in the short term; “Base effects will remain influential over the next couple of months and, along with a 12% fall in Ofgem’s energy price cap, this should mean inflation falls to, or below, the Bank of England’s 2% target in April.”

According to Beck energy prices could decline further in July and added; “So, there’s a good chance that inflation declines well below 2% in the second half of the year.”

ING noted significant progress in cutting services-sector inflation, but still expressed some caution.

According to the bank; “That said, both 2022 and 2023 saw huge price rises across service-sector categories during the second quarter, mainly linked to annual contractual price rises. These add a certain degree of unpredictability to the data and we think the BoE will want to have the inflation figures for April and May in hand before doing anything on interest rates.”

Looking at the Bank of England reaction; “If the services inflation and wage growth data surprise to the downside ahead of the June meeting, then there’s a chance we get a rate cut at this point. But more likely we think the committee will wait for a few more numbers and also a new round of forecasts, which makes August a more likely candidate for the first rate cut.”

MUFG added; “In all likelihood, the level of services inflation will encourage continued caution by the MPC that has plenty of justification for signalling the need for more time to monitor disinflation trends before deciding on cutting rates.”

The bank did, however, note that the first-quarter inflation rate will be below the BoE’s forecast.

According to MUFG; “Overall the required caution on monetary easing will continue to support the pound, which remains the top performing G10 currency year-to-date along with the US dollar.”

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