GBP/EUR: Pound Tumbles As PM May Clings To Power
  • Pound (GBP) falls after BoE Andrew Bailey’s comments
  • House prices fell 4.6%
  • Euro (EUR) falls as German industrial output falls -0.8%
  • Eurozone GDP Q2 is revised lower to 0.1%

The Pound Euro (GBP/EUR) exchange rate is rising, extending gains from last week. The pair rose +0.59% in the previous week, settling on Friday at €1.1691 and trading in a range between €1.1580 – €1.1710. At 08:35 UTC, GBP/EUR trades +0.02% at €1.1693.

The pound is falling against the euro and the US dollar as investors rein in BoE rate hike expectations. Bank of England governor Andrew Bailey said in his testimony before the Treasury Select Committee that the UK economy is nearing the top of its rate hiking cycle.

His comments come ahead of a Monetary Policy Committee meeting on the 21st of September, where policymakers will decide whether to raise interest rates from the current 5.25% for a 15th straight time.

Bailey’s comments and similar signals from other MPC members about pausing interest rate hikes mean that the voting split at the meeting could be finely balanced.

UK house prices fell at the fastest pace in August since November as higher interest rates and rising mortgages hurt the housing market. House prices plunged 4.6%.

The euro is rising despite more weak data from the region. German industrial production goes from bad to worse, dropping for a third consecutive month in July. Output fell by -0.8% month on month, after falling 1.4% in June. The data adds to evidence that the German economy is at heightened risk of falling into a recession.

Meanwhile, the eurozone economy grew much slower than initially expected in the second quarter. GDP growth for the April to June period was revised lower to 0.1% from 0.3%. The Q1 GDP was revised higher to 0.1% from 0%.

Still, the outlook for the region remains bleak, with the recession looking increasingly likely after PMI data earlier this week showed that business activity contracted for a third straight month.

Investors are becoming increasingly convinced that the ECB could be close to peak interest rates. This was a view that was shared by policymaker Francois Villeroy earlier today. However, ECB president Christine Lagarde has kept her cards close to her chest over what to expect in September.