Pound to euro exchange rate: Sterling makes ‘terrific’ comeback after inflation surge
The exchange rate has leapt to €1.110 after briefly peaking at €1.112 yesterday.
Inflation was expected to accelerate from 2.6 per cent to 2.8 per cent, but instead returned to the 2.9 per cent level last witnessed in May.
Core inflation beat forecasts of 2.6 per cent to climb from 2.4 per cent to 2.7 per cent, a six-year high.
At 4.6 per cent, growth in the price of clothing and footwear has now reached a level not seen since 1989.
The strong inflation data has prompted fresh speculation of an interest rate rise in the near-term.
TorFX currency analyst Laura Parsons said: “Tuesday was pretty terrific for the pound.
“With UK inflation figures for August smashing forecasts, the GBP/EUR exchange rate surged by over 0.7 per cent, briefly hitting a high of €1.112 during the European session.
“Sterling racked up pretty impressive gains against most of the majors as the uptick in consumer price pressures upped the odds of the Bank of England (BoE) reconsidering its current wait-and-see stance on interest rates.”
The data may be sufficient to see BoE Chief Economist Andy Haldane return to the hawk’s camp, after briefly flirting with the idea of backing a rate hike earlier this year – until poor domestic data saw him return to his usual cautious stance.
Signs that the BoE intends to react differently to this inflation spike than the one seen in May would continue to push the pound higher.
Fresh data out of the UK today could have a similarly positive effect on the exchange rate.
Ms Parsons said: “The pound could extend gains against the euro today if the UK’s wage data shows the increase in average earnings forecast by economists.
“As it stands, wages excluding bonuses are believed to have increased by 2.2 per cent while wages including bonuses rose 2.3 per cent.”
The euro is struggling this week after comments from European Central Bank (ECB) official Benoît Cœuré.
Mr Cœuré warned on Monday that the Eurozone economy may continue to need high levels of stimulus in the long-term.