EUR/GBP: the euro continues to gain ground against the pound

UK stagflation fears benefit EUR/GBP

EUR/GBP price continues its slow rise towards last year’s highs as the pound comes under increasing pressure on fears of stagflation. Indeed, the latest data on inflation and growth have further reinforced this idea. May’s consumer price index hit a 40-year high of 9.1% as the economy contracted 0.3% in April, after already contracting by 0.1% in March.

Markets understandably fear a prolonged bout of stagflation as the Bank of England’s five rate hikes since December appear to have been ineffective against inflation for the time being, but may very well have started to weigh on growth.

In this context, the pound sterling should continue to underperform the euro as long as the data on growth do not reassure the United Kingdom. In Europe, the euro has also been under pressure against most major currencies since Tuesday due to the ECB’s slow response. The ECB, however, could surprise at its next meeting in July as more and more voices are being raised for a first rate hike of not 25, but 50 basis points.

EUR/GBP daily price chart – key levels

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