The euro (EUR) gained some ground against the British pound (GBP) after hitting lows earlier this week. This came as higher inflation figures from Germany provided some support, even as anxieties rose in the Middle East. Currently, EUR/GBP is above 0.8540 but has pulled back from last week’s peak of over 0.8580, keeping a bearish outlook for now.
Germany’s Statistical Office released data confirming earlier estimates showing the Harmonized Index of Consumer Prices (HICP) increased to 2.8% year-over-year in July, up from 2.4% in June. This rise was primarily driven by energy inflation, which surged to 7.3% compared to 2.7% the previous month.
In contrast, the pound has been performing better than the euro, particularly given the escalating tensions following an attack by Iranian-backed Houthi militants on an Egyptian ship in the Red Sea, resulting in casualties among the crew. Earlier, U.S. forces had also fired on a cargo ship registered in Panama that attempted to breach a blockade near an Iranian port.
These incidents have further complicated the peace discussions between the U.S. and Iran, leading to a rise in oil prices. On Wednesday, Brent crude jumped about 13% from last week, surpassing $88.00 per barrel, which adds to the inflationary pressures and creates more strain on the oil-importing eurozone economy.
UK interest rate projections facing uncertainty without growth surprises
With no significant economic events on Wednesday, investors are turning their attention to the preliminary second-quarter gross domestic product (GDP) figures set to be released on Thursday to glean insights on the Bank of England’s near-term monetary policy.
Analysts at Brown Brothers Harriman expect real GDP to grow by “0.4% quarter-on-quarter, down from 0.6% in the previous quarter,” while the Bank of England remains cautious, anticipating a softer outlook at “0.3% quarter-on-quarter” due to weaker household income growth and tighter financial conditions impacting domestic demand.
Moreover, the central bank forecasts consumption growth to decrease to 0.3% quarter-on-quarter in the second quarter, compared to 0.6% in the first quarter. Brown Brothers Harriman cautioned that if GDP growth does not exceed expectations, interest rate policies in the UK could face pressures to shift dovishly regarding the pound.
