- Pound (GBP) rose yesterday after sticky inflation
- BoE expected to hike by 50 bps
- Euro (EUR) digests mixed ECB news
- ECB minutes of the December meeting are due
The Pound Euro (GBP/EUR) exchange rate is falling after two days of gains. The pair rose 0.4% in the previous session, settling on Wednesday at €1.1436, after trading in a range between €1.1356 – €1.1453. At 05:45 UTC, GBP/EUR trades -0.1% at €1.1425.
The pound pushed higher on Wednesday after data showed that inflation cooled for a second straight month but remained stubbornly in double digits. UK inflation as measured by the consumer price index, rose 10.5% year on year in December, down from 10.7% in November. Meanwhile, core inflation which strips out more volatile items such as food and fuel held steady at 6.3%, when analysts had expected core inflation to tick lower to 6.2%.
Delving deeper into the data, fuel costs fell. However, food prices continued to rise strongly, with food inflation jumping 16.8% annually in December.
The sticky inflation data, in addition to the strong labour market data released earlier in the week piles pressure on the Bank of England to continue hiking interest rates aggressively at the next meeting in February.
Today there is no high-impacting UK data to be released today. Investors will continue digesting this week’s data dump ahead of retail sales figures on Friday.
The euro is on the rise as investors continue digesting mixed messages from the European Central Bank. While rumours circulated earlier in the week that the ECB could look to slow the pace of rate hikes from March to 25 basis points. French central bank President Francois Villeroy said that Christine Lagarde’s guidance still stands, which indicated a more hawkish outlook.
Data yesterday confirmed that eurozone inflation cooled in December to 9.2% year on year, down from 10.1% in November.
Today the minutes of the December ECB meeting will be released. In the meeting the central bank hiked rates by 50 basis points and Christine Lagarde suggested that more large hikes were needed to tame inflation.