GBP/EUR: UK Politics & German Sentiment Data To Drive Movement
  • Pound (GBP) rose yesterday after strong inflation
  • Will the BoE hike rates more aggressively?
  • Euro (EUR) rises ahead of the ECB rate decision
  • Is a 25 or 50 bps hike coming?

The Pound Euro (GBP/EUR) exchange rate is falling, paring gains from the previous session; the pair rose +0.25% on Wednesday, settling at €1.1756, after trading in a range between €1.1701 – €1.1777. At 05:45 UTC, GBP/EUR trades -0.16% at €1.1738.

The pound rose in the previous session after higher-than-expected inflation in the UK. Inflation as measured by the consumer price index rose to 9.4% year on year in June, up from 9.1% in May and ahead of the 9.3% forecast by analysts.

The data follows jobs data earlier in the week which showed that wages rose by 4.3%, less than half of the increase in inflation. As a result, the cost of living crisis will get worse. Further the BoE forecast that inflation will continue rising before peaking at around 11% in the coming months.

The data could encourage the Bank of England to hike rates more aggressively when it makes its next monetary policy announcement in August. Earlier in the week, BoE Governor Andrew Bailey floated the idea of a 50 basis point rate hike at the next meeting.

Today there is no high impacting UK economic data. Investors will look ahead to retail sales data on Friday.

The euro fell against the pound yesterday after softer than forecast German wholesale inflation data. German PPI rose 0.6% month on month in June, below the 1.1% forecast and down from 1.3% in May.

Eurozone consumer confidence fell in July to 24.9, down from 23.5 in June as rising prices and concerns over energy security hit morale.

Today the focus is on the European Central Bank which is expected to raise interest rates for the first time in over 10 years today. Investors will be watching closely to see whether investors will be hiking rates by 25 or 50 basis points. A 25 basis point hike could disappoint the market.