The British pound is lower against the euro on Wednesday.
Sterling fell after the Governor of the Bank of England told UK lawmakers that negative interest rates were under ‘active review’.
Both the UK and Eurozone released inflation data and it was the UK that undershot economist’s expectations by the bigger margin, weighing on the pound and giving a lift to the euro.
Pound versus Euro was lower by 49 pips (-0.47%) to 1.1163 as of 3pm GMT.
GBP/EUR dropped below the 1.12 handle in early trading, falling to 1.117 before re-testing 1.12 and turning lower and finally stabilising near 1.115.
Yesterday the exchange rate rose +0.38% but today’s losses take it lower for the week by -0.25%.
GBP: Negative UK rates coming?
In his testimony to the Treasury Select Committee of MPs, the Bank of England’s Andrew Bailey said that the UK central bank was keeping the ‘lower bound’ (meaning the lowest in which interest rates can be cut)- under ‘active review’.
The BOE’s apparent openness to negative interest rates means there is now more space to lower the benchmark UK interest rate further, despite already standing at a record low of only 0.1%. The European Central Bank already has a negative deposit rate in place, which had been one reason for the pound to hold above parity against the euro until now.
EUR: Inflation falling faster in UK
Euro-area inflation fell to just 0.3% year-over-year in April from 0.4% in March but the drop was mostly caused by energy prices and core prices, which strip out food and fuel prices remained steady at 0.9% y/y.
The rate of inflation in the UK was higher than that of Europe as of April, but the rate of change in inflation to the downside was bigger. UK CPI inflation rose 0.8% in April, nearly half the 1.5% in March. Again core prices held steadier but did also declined to 1.4% y/y from 1.6%.
The euro has been building some upside momentum since the announced plans of an ‘EU recovery fund’ late on Monday.
