Pound Gains Limited by Rising Eurozone Inflation Bets
The Pound-Euro exchange rate has been trending higher this week due to improved UK GDP figures. The latest data from the Office for National Statistics showed that second-quarter GDP growth was bumped up to 0.5%, exceeding preliminary estimates of 0.4%. This unexpected upgrade has traders believing the Bank of England will have more room to raise interest rates in November.
The Euro, on the other hand, has been subdued due to disappointing retail sales figures from Germany and higher European gas prices. The number of unemployed persons also rose more than expected in September, further weighing down EUR sentiment.
Looking ahead, the key catalyst for movement will be the publication of the Eurozone's consumer price index on Thursday. Preliminary CPI figures are expected to show a sharp acceleration in inflation across the bloc, with year-on-year price growth rising from 3.2% to 3.6%, its highest level in nearly three years.
This could revive bets for another European Central Bank rate hike in October and lift the Euro. However, it may also cap GBP gains if Eurozone inflation accelerates sharply.