- Pound (GBP) fell despite BoE rate hike
- UK services PMI is due
- Euro (EUR) rose after a 50 bps hike, with more to come
- Eurozone composite PMI is due
The Pound Euro (GBP/EUR) exchange rate is rising after 4 days of declines. The pair fell 0.53% in the previous session, settling on Thursday at €1.111=99, after trading in a range between €1.11164 – €1.1269. At 05:45 UTC, GBP/EUR trades +0.13% at €1.1213.
The pound fell for a fourth straight session on Thursday after the Bank of England raised interest rates by 0.5% to 4%, the highest level in 14 years, in an attempt to fight double-digit inflation. The BoE said that it still expects the UK to enter a recession this year, but it will be a milder recession than initially expected.
The UK central bank also said inflation is likely to have peaked and it downwardly revised its 2023 inflation forecast two 4% from a previously expected 5%. This, is addition to the removal of the word “forcefully” with regard to rate hikes, added to the view that the central bank would slow the pace of rate hikes in the next meeting.
Today attention will now shift towards the release of the services PMI data for January. The PMI is expected to confirm the preliminary reading of 48, which was down from 49.9 in December. The level 50 separates expansion from contraction.
The euro extended gains yesterday after raising interest rates as expected by 50 basis points and saying that it intends to increase interest rates at the same pace again in March. The ECB statement and press conference fail to offer further guidance on the path of future rate hikes beyond March.
Instead, there were mixed messages about slowing headline inflation and cooling energy prices, as well as remarks that underlying inflation was still very much alive. These mixed messages highlight the balancing act at the ECB, with some policymakers concerned that the central bank has already hiked rates by too much and others who consider that inflation is still too high to stop hiking anytime soon.
Attention will now turn to the Eurozone wholesale inflation, as measured by PPI, which is expected to cool to 22.5% in December, down from 27.1%.
