• Pound (GBP) rebounds on BoE rate hike bets
  • UK CPI due to be released
  • Euro (EUR) remains depressed versus Pound on central bank divergence
  • Eurozone CPI and German PPI in focus

The Pound Euro (GBP/EUR) exchange rate is holding steady after strong gains in the previous session. The pair settled +0.3% on Tuesday at €1.1857. At 05:45 UTC, GBP/EUR trades -0.01% at €1.1855

The Pound charged higher in the previous session recouping losses from the start of the week. Sterling has experienced a volatile week so far as expectations mount that the Bank of England could hike interest rates as soon as this year.

All eyes are on today’s inflation data. Inflation as measured by the consumer price index is expected to hold steady in September at 3.2%. This is still well above the Bank of England’s 2% target level. On a monthly basis CPPI is expected to ease slightly to 0.4%, down from 0.7%.

Inflation remains above target amid the ongoing energy crunch, supply chain disruptions and labour shortages. The Bank of England is now considering that elevated levels of inflation could be around for longer than initially anticipated. As a result, bets are rising that the BoE could start to raise interest rates as soon as this year, which is lifting the Pound.

At the weekend BoE Governor Andrew Bailey gave the clearest hint yet that the central bank will hike rates.

Whilst the Euro came under pressure versus the Pound in the previous session. There was little in the way of economic data. Instead European Central Bank speakers dominated the airwaves.

The ECB’s chief economist Philip Lane warned the markets against pricing in an interest rate hike by the ECB which the central bank isn’t contemplating. The Euro has broadly under performed its major peers on central bank divergence.

Looking ahead, Eurozone inflation for September is expected to confirm the 1.9% initial reading. On a monthly basis CPI is expected to tick higher to 0.5%, up from 0.4%.

German inflation at wholesale level is also due to be released and is expected to rise on an annual basis to 12.7%, up from 12%.