The exchange rate is this morning buying €1.087, after hovering around this rate for much of the past day.
Eurozone inflation results posted yesterday revealed the rate rose faster than expected in July.
While the pound took an initial hit, it has managed to claw back to levels seen before the release.
According to CPI data published by Eurostat, Eurozone inflation jumped from 1.3 per cent to 1.5 per cent in July, outpacing expectations it would only reach 1.4 per cent and reaching a new four-month high.
The rise is likely to renew calls for the European Central Bank (ECB) to tighten monetary policy, especially after German inflation surged to 1.8 per cent this month, placing it just short of the Bank’s two per cent target.
With the ECB set to hold its latest policy meeting next week, speculation will be rife over whether the bank will begin discussing the possibility of tapering its quantitative easing programme, a prerequisite for the central bank to start raising interest rates.
However, with the core inflation rate (which strips out volatile items such as food and energy prices) remaining flat at just 1.2 per cent, most analysts predict that ECB President Mario Draghi will not signal any changes to the bank’s policy plans next week, likely leaving many EUR investors disappointed.
Some investors have instead placed the onus of the pound’s recent struggles on the Bank of England.
Michael Hewson, chief market analyst at CMC Markets UK, said: “Part of the reason around the weakness of the pound can be laid at the Bank of England’s door and their policy of almost benign neglect of the currency.
“Bank of England governor Mark Carney warned 10 months ago that the Bank wasn’t indifferent to the effects that the exchange rate was having on the economy as well as the inflation rate, yet has shown no signs recently that it is a cause for concern despite trading just above levels last seen in 2007 on a trade weighted basis.”
Sterling tumbled earlier this week after negative comments made by the EU chief Brexit negotiator.
Michel Barnier suggested Britain was not taking the Brexit process seriously, as talks began with UK Brexit secretary David Davis.
Ian Strafford-Taylor, CEO of FairFX said it’s never been more important to prepare well in advance, as the euro gathers strength.
He added: “The pound continued to perform poorly against the euro and dollar last week, meaning any holidaymakers that left currency to the last minute may have found a bank holiday break to Europe or the US more expensive.
“Those looking ahead to holidays in the coming months may want to lock in an exchange rate on a prepaid card, allowing them to know how much foreign currency they’ll have for their trip.”
