Euro benefits from weak Pound after inflation data
The single currency is trying to regroup against a pound sterling weakened by growing fears of stagflation. EUR/GBP returns to test last week’s highs as UK inflation data came in better than expected at a 40-year high of 10.1% for headline inflation and 6.2% for underlying inflation.
The relentless price pressures facing the UK have failed to ease, as the Bank of England (BoE) was the first major central bank to hike rates last year. BoE forecasts for inflation to peak at 13.3% later this year before starting to ease, but market participants and economists have become more pessimistic about the British economy.
British GDP fell by 0.1% in June according to the National Statistics Office (ONS) due to the rise in the cost of living which is beginning to impact consumption. Retail sales for the month of July published this morning do not improve the outlook. They certainly came out up by 0.2% over one month, which is higher than expected, but are down by 0.4% after adjusting for inflation.
The pound sterling therefore finds itself under pressure as the scenario of stagflation materializes a little more each month.
EUR/GBP daily price chart – key levels