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GBP/EUR exchange rate rallies to 20-month high as upbeat data fuels BoE rate hike speculation

currency-newsGBP/EUR exchange rate rallies to 20-month high as upbeat data fuels BoE rate hike speculation
The pound rallied on Tuesday, with the currency being underpinned by a larger-than-expected drop in domestic unemployment.

Sterling looks to be extending these gains so far this morning, with GBP/EUR climbing to €1.1892 and GBP/USD buoyed at $1.3443. GBP/AUD has rallied to AU$1.8441, while GBP/CAD and GBP/NZD hold steady at C$1.6869 and NZ$1.9179 respectively.

Looking ahead, will a strong UK inflation reading help to propel GBP exchange rates even higher today?

What’s been happening?

The pound trended higher during yesterday’s trading session, following the release of the UK’s latest jobs report.

According to data published by the Office for National Statistics (ONS), the UK’s unemployment rate fell from 4.5% to 4.3% in September, in spite of the government’s furlough scheme coming to a close.

The upbeat employment figures were interpreted by GBP investors as bolstering the odds of the Bank of England (BoE) raising interest rates next month.

This US dollar also strengthened on Tuesday, following the release of a stronger-than-expected US retail sales print as well as some hawkish commentary from the Federal Reserve.

The euro, meanwhile, remained on the defensive yesterday, as while the Eurozone's second GDP estimate for the third quarter printed in line with expectations, EUR investors raised concerns over a jump in gas prices in Europe, after the approval process for the Nord Stream 2 natural gas pipeline from Russia to Germany was halted by regulators.

What’s coming up?

The publication of the UK’s consumer price index earlier this morning, sees the pound get off to another strong start today.

The ONS reports domestic inflation surged to 4.2% in October. This is likely to underpin Sterling sentiment today as it further bolsters the odds the BoE might hike interest rates by the end of 2021.

The Eurozone will also publish its latest CPI figures today. October’s finalised reading is expected to confirm inflation in the bloc accelerated to a 13-year high of 4.1%, but given the European Central Bank’s (ECB) current dovish bias, its impact on the euro could be negligible.

For USD investors the focus today will be on a series of speeches by Federal Reserve policymakers. Markets will be focused on policymakers' reactions to the recent jump in US inflation.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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