The pound is stuck in a narrow range against the euro this morning as markets react to the UK’s latest consumer price index (CPI). According to data published by the Office for National Statistics (ONS), domestic CPI inflation slowed from 2.4 per cent to 2.3 per cent last month, in line with market expectations. This was the slowest pace of inflation in 20 months. It appeared to be driven by weaker price growth in recreational products such as video games and toys as well as a sharp downturn in oil prices, with petrol prices falling 2.6 pence per litre between October and November.
The release comes as the Bank of England (BoE) prepares to make its final rate decision of the year and while today’s CPI figures are likely to have little impact this month’s decision, the slowdown in inflation may be seen as dampening the prospects of future hikes in 2019.
Offsetting this however was a softening of the euro this morning following the publication of the Eurozone’s latest construction data.
This saw Eurostat report that construction output across the bloc slowed from 4.8 per cent to 1.8 per cent in October, missing expectations of a more modest dip to 2.9 per cent.
While the data is fairly low impact, it further fuels speculation of a slowdown in the eurozone economy in the fourth quarter, following a recent run of lacklustre data.
Looking to the second half of the week, barring any major Brexit developments, movement in the pound euro exchange rate looks set to be dominated by the Bank of England’s upcoming rate decision.
While no policy changes are expected from the BoE this month, the pound may still move higher if the bank appears to signal that Brexit could permit it to target multiple rate hikes in 2019.
Sterling may also find support in the run-up to the meeting as well as the UK’s latest retail data, which is expected to report that sales growth rebounded in November.
Meanwhile the euro may struggle to find momentum in the latter half of the week as a lull in notable eurozone data leaves the single currency without any catalyst for movement.