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Sterling -Euro very favourable after 1% gain this week

The Pound pounces on the out of favour Euro..

£-€ has surprisingly seen its value jump to the 3rd highest point in a year this week after core inflation in the UK surprises. The Pound has jumped over 1% against the Euro, but remains unchanged versus the USD.

The gain on the single currency could crumble by this time tomorrow, which is dependent on how bad the UK retail sales scene is currently. Both pairs are favourable at current rates seeing as no-one had predicted the rise this week against the € and the forecast versus the $ is negative near-term. 

So the headlines in the mainstream media will read that UK inflation has dropped by a whole 1% which is great news. However, it's the core inflation that really matters which remains unchanged. Core inflation is a measure of inflation that excludes food and energy prices. These are both considered to be more volatile than other prices and so core inflation provides a much more accurate measure of inflation. 

Core inflation in the US has been at pre-pandemic levels for 2-months and it looks like the UK won't reach that point until next year. Wages, mortgages, hotels and transport have all increased from last month and so inflation remains very worrying for the BoE.

A 25bp rate hike is almost a 100% guarantee next month from the BoE and the inflation data this week doesn't change that one bit. So it's a surprise to see £-€ jump so much to be honest and therefore expect to see overbought headlines in the coming days for this pair.