- Pound (GBP) looks to the BoE
- A 50 bps rate hike is expected
- Euro (EUR) is expecting a 50 bps hike from the ECB
- Eurozone inflation cooled to 8.5%
The Pound Euro (GBP/EUR) exchange rate is falling for a fourth straight session. The pair fell 0.7% on Wednesday, settling at €1.1259, after trading in a range between €1.1254 – €1.1341. At 05:45 UTC, GBP/EUR trades -0.11% at €1.1247.
The pound fell in the previous session as data showed that the UK manufacturing sector contracted for a sixth straight month, hurt by inflation, shortages, and weak demand. The 47 PMI was up from December’s 45.3, which marked a 31-month low. However, it still points to a weak start to 2023 for the UK economy
The data comes ahead of the Bank of England interest rates announcement later today. The BoE is set to raise interest rates by 50 basis points marking the 10th straight interest rate increase as the central bank fights double-digit inflation. The move would take rates to 4%, its highest level since the financial crisis.
The euro pushed higher yesterday despite eurozone inflation fooling much more than expected in January. Inflation as measured by the consumer price index, fell to 8.5%, down from 9.2% in December and well below 9.1% expected by analysts.
Interestingly core inflation which strips out more volatile items such as food and fuel, remind unchanged at 5.2% year on year, suggesting that inflation remains sticky.
In addition to inflation data, euro investors also digested the release of the latest manufacturing PMI data, which showed that the downturn in the sector eased in January. The manufacturing PMI rose to 48.8.
Regardless of the fool in headline inflation, the European Central Bank is expected to lift its main interest rate by 50 basis points today. This will take the deposit range to 2.5%, and the central bank is likely to stick with its tightening cycle for at least another meeting and until it has a grip on inflation, which hit a record high of 10.6% in October.