GBP/EUR: The pair turns to UK and German inflation data

  • The British pound (GBP) rose after strong labor market data
  • UK inflation data expected
  • The Euro (EUR) fell as the USD strengthened
  • German inflation data expected

The British pound exchange rate (GBP/EUR) rose for a second straight day on Wednesday. The pair was up +0.4% in the previous session, settling at €1.1999, around the daily high. As of 05:45 UTC, GBP/EUR is trading +0.08% at €1.2009.

The pound rose in the previous session after the UK unemployment rate fell to 4.1% in the three months to November, from 4.2 and the lowest level since the start of the pandemic . The number of employees on payroll rose by 184,000 in December despite a sharp rise in Omicron cases. Meanwhile, the number of vacancies reached 1.25 million in the last quarter of the year. The data indicates that the UK labor market is well on its way to recovery.

Today, UK inflation data is in focus. Analysts expect the UK CPI to rise to 5.2% in December from 5.1%. That would be well above the Bank of England‘s 2% target level and mark a 30-year high. Inflation is expected to hit 6% by April as energy prices continue to rise and supply chain disruptions keep prices high

A strong labor market and high inflation pave the way for another interest rate hike by the BoE in February.

The Euro came under pressure in the previous session despite the bullish ZEW economic sentiment in Germany. The common currency came under pressure as the US dollar rose amid growing expectations that the Fed would act aggressively to curb soaring inflation. The euro trades against the United States

German economic sentiment jumped to 51.7 in January, marking a considerable upside surprise from 29.9. Economists expected sentiment to rise to 32.00. The better-than-expected data comes as COVID cases are expected to fall in early summer.

Looking ahead, German inflation data will be the focus. Analysts expect inflation in Europe’s largest economy to have hit 5.3% in December, from 5.2% in November. Despite soaring inflation in Germany, the European Central Bank is unlikely to raise interest rates this year.

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