• Pound (GBP) rises after two days of losses
  • BoE in a dilemma over how far to hike rates
  • Euro (EUR) falls ahead of Christine Lagarde’s speech
  • German inflation data due

The Pound Euro (GBP/EUR) exchange rate is rising on Wednesday paring losses from the previous session. The pair lost -0.06% on Tuesday, settling at €1.1579, after trading in a range between €1.1563 – €1.1615. At 08:45 UTC, GBP/EUR trades +0.16% at €1.1597.

The pound fell yesterday as Brexit woes dragged on sentiment for sterling. The UK government is pressing ahead with changes to the Northern Ireland protocol in a move which will anger the European Union.

The pound also came under pressure after Scottish leader Nicola Sturgeon proposed a data for a second Scottish independence reference in October next year.

Today the pound is raining. However, the outlook for the UK economy remains downbeat. The UK economy faces a double threat of surging inflation and recession risk, leaving the BoE in a dilemma over how far to raise interest rates.

BoE’s Andrew Bailey is due to speak this afternoon at the ECB forum, investors will be listening closely for clues as to whether the central bank will prioritize reining inflation at the risk of sending the UK into a deep recession.

The euro rose in the previous session despite dismal German consumer confidence data, which showed that sentiment in the eurozone’s largest economy fell to a record low in July. The slump in confidence comes as inflation rises to a record high and recession fears rise.

Instead, investors focused on hawkish comments from European Central Bank President Christine Lagarde, who suggested that the ECB could look at bigger rate hikes after a 25 basis point rise in July.

Today the euro is coming under pressure as attention turns to German inflation data, which is expected to show consumer prices rose to a record high of 8.8% YoY in May, up from 8.7%.

In addition to the data, attention will be on ECB President Lagarde who is due to speak again at the ECB’s annual forum. More hawkish comments could lift the euro higher.