GBP/EUR: Will UK Inflation Data Pull Pound Lower?
  • Pound (GBP) fell after food inflation slowed
  • BoE Governor Andrew Bailey to panel discussion
  • Euro (EUR) was boosted by hawkish Lagarde comments
  • ECB’s Lagarde will speak & German consumer confidence is due

The Pound Euro (GBP/EUR) exchange rate is falling for a third straight day. The pair fell 0.24% in the previous session, settling on Tuesday at €1.1626 and trading in a range between €1.1609 – €1.1674. At 05:35 UTC, GBP/EUR trades -0.02% at €1.1624.

The euro pushed higher in the previous session following hawkish comments from European Central Bank president Christine Lagarde. Lagarde reiterated plans for another rate hike in the July meeting and said that the ECB probably won’t be able to declare the end of its interest rate increases anytime soon.

While economists are pricing in a peak rate of 3.5%, up 25 basis points from the current 3.5% level, the markets are actually pricing in a peak rate of around 4% later this year.

The ECB forum on central banking will continue on Wednesday with more ECB policymakers speaking, including chief economist Philip Lane. ECB president Lagarde will also panel a discussion with other central bank heads, including Federal Reserve Chair Jerome Powell and BoE Governor Andrew Bailey.

In addition to ECB speakers, German consumer confidence data is expected to show that morale improved slightly in July- 23, up from – 24.2. This would mark the ninth straight increase and comes as the German economy remains in recession.

The pound drifted lower in the previous session as investors digested data that showed that food inflation in the UK was slowing. According to the British Retail Consortium, food prices increased 14.6% year on year in June, slightly down from the 15.4% recorded in May.

While wholesale food and commodity prices are falling it’s taking a long time to show up On supermarket shelves. With food prices the largest contributor to inflation, supermarkets could come under increasing pressure to pass on falling prices.

The data comes ahead of an appearance by Bank of England governor Andrew Bailey today, who will panel a discussion at the ECB central bankers forum. Last week the Bank of England raised interest rates by a large than expected 50 basis points to tame inflation.