- Pound (GBP) is rising for a third day
- BoE could stay more hawkish than other central banks
- Euro (EUR) falls ahead of PPI
- Could the ECB slow the pace of hikes in December?
The Pound Euro (GBP/EUR) exchange rate is rising for a fourth straight session. The pair rose 0.5% yesterday, settling at €1.1644 after trading in a range between €1.1570 – €1.1700. At 09:25 UTC, GBP/EUR trades +05% at €1.1651.
The pound is pushing higher as it continues to benefit from flows out of the USD. As investors continue to sell out of the USD following Federal Reserve Jerome Powell’s speech earlier in the week, the pound has become the currency of choice.
With inflation still in double digits and showing few signs of slowing, the BoE could be forced to continue its aggressive rate hikes, while the Fed and possibly the ECB are looking to slow the pace of rate hikes.
The UK economic calendar has been quiet this week, with just shop inflation showing that food inflation was still over 12%, and UK manufacturing activity also contracted by less than expected.
Looking ahead, there is no new data expected from the UK today. Investors will look ahead to next week with service sector PMI data due on Monday.
The euro has struggled to gain ground against the pound following inflation data earlier in the week which showed that consumer prices cooled by more than expected in November. Inflation dropped to 10%, which has raised speculation that the ECB could slow the pace of rate hikes from this month.
Attention will now be on the producer price index, which measures inflation at factory gate level. Expectations are for PPI to fall to 31.5% year on year in October down from 41.9%.
PPI is considered a lead indicator for CPI inflation. A sharp fall in PPI could suggest that consumer price inflation will also continue to fall, which could pull the euro lower.
ECB President Christine Lagarde is due to speak over the weekend. Investors will be watching for further clues on the direction of monetary policy.