- Pound (GBP) fell last week despite the BoE hiking rates
- BoE raised rates by 25 basis points
- Euro (EUR) rose last week after unscheduled ECB meeting
- German PPI is due
The Pound Euro (GBP/EUR) exchange rate is edging lower at the start of the week. The pair lost -0.57% across last week, settling on Friday, at €1.1639, after trading in a range between €1.1463 – €1.1715. At 05:45 UTC, GBP/EUR trades -0.06% at €1.1635.
The pound lost ground against the euro last week despite the Bank of England raising interest rates by 25 basis points, in its fifth consecutive meeting of hikes. The move has taken the BoE’s benchmark lending rate to a 13-year high of 1.25%.
The central bank hinted at a gradual approach to hiking interest rates amid growing concerns that the UK is heading for a recession. The BoE lowered its growth outlook and also raised its inflation expectations. The central bank now considers that inflation will rise to 11% in the coming months, up from 10%.
The main focus for the pound this week will be the CPI inflation reading, which is expected to show that consumer prices rose to 9.8% year on year in May, up from 9%. Later in the week, UK retail sales will also shed some light as to whether surging prices mean that consumers are changing their spending habits.
The euro rose versus the pound last week despite the European Central Bank calling an emergency meeting to discuss how best to deal with fragmentation within the bloc. Rising treasury yields in the peripheral countries were raising concerns of unsustainable debt repayments and another sovereign debt crisis. The ECB announced an anti-fragmentation tool that helped to calm market nerves.
Looking ahead, the focus this week for the euro will be the PMI data which is expected to show that business activity slowed slightly in May but remained resilient.
Today German PPI data for May is expected to confirm the preliminary reading of 33.5%. PPI is often considered a lead indicator for CPI. The elevated PPI means CPI is unlikely to fall any time soon.
