EUR/GBP steady on UK political scrutiny, German producer prices

EUR/GBP trades around 0.8700 on Monday, remaining broadly stable on the day at the time of writing as opposing forces between the Euro (EUR) and the Pound Sterling (GBP) keep the cross within a narrow range.

The British currency is facing some pressure as political scrutiny intensifies around UK Prime Minister Keir Starmer. The Prime Minister is due to address the House of Commons regarding the vetting process linked to the appointment of former UK ambassador to the US Peter Mandelson. The appointment triggered controversy last year because of Mandelson’s past ties with convicted sex offender Jeffrey Epstein. Opposition parties accuse Starmer of misleading Parliament over the security checks conducted for the position, increasing political uncertainty in the United Kingdom (UK) and limiting support for the Pound Sterling.

At the same time, the broader market environment remains cautious as investors monitor geopolitical developments in the Middle East. The peace process between the United States (US) and Iran appears fragile after Washington seized an Iranian cargo ship attempting to cross the Strait of Hormuz. Iranian authorities have suggested they may not attend the next round of talks scheduled for Tuesday, accusing the US of violating the ceasefire. This backdrop is encouraging a generally cautious tone across currency markets.

On the macroeconomic front, the Euro receives some support from inflation-related data in Germany. Germany’s Producer Price Index (PPI) increased by 2.5% on a monthly basis in March, marking its strongest reading since August 2022. On a yearly basis, however, the index declined by 0.2% following a 3.3% drop in February. The sharp monthly increase highlights the inflationary effects of rising energy prices linked to tensions in the Middle East and could reinforce expectations that the European Central Bank (ECB) may need to consider tighter monetary policy later this year.

In the United Kingdom, the economic calendar is relatively light at the start of the week, but attention will quickly shift to a series of key releases. Investors are awaiting the labour market report for the three months ending in February, due on Tuesday, followed by Consumer Price Index (CPI) data for March on Wednesday and Retail Sales figures on Friday. Economists expect wage growth to slow while the Unemployment Rate is forecast to remain steady at 5.2%, developments that could give the Bank of England (BoE) room to keep interest rates unchanged at its upcoming policy meeting.