- Pound (GBP) looks to CPI data
- Expectations are for CPI of 8.2%
- Euro (EUR) supported by hawkish commentary
- Eurozone inflation
The Pound Euro (GBP/EUR) exchange rate is falling for a fourth straight session. The pair fell -0.2% yesterday, settling on Tuesday at €1.1608 and trading in a range between €1.1607 – €1.1661. At 06:35 UTC, GBP/EUR trades -0.08% at €1.1599.
The pound fell in the previous session in a quiet session where traders lacked fresh fundamental catalysts to drive the pound. However, that changes today as investors look ahead to the release of UK inflation data, which could be the deciding factor whether the Bank of England raises interest rates by 25 or 50 basis points at the August meeting.
Expectations are for inflation to cool to 8.2% year on year in June, down from 8.7% in May. Meanwhile, core inflation which strips out more volatile items such as food and fuel is expected to hold steady at 7.1%.
With inflation expected to be still over four times the Bank of England’s 2% target rate, more rate hikes are inevitable. The market is pricing in a peak interest rate of 6.5% by the Bank of England up 150 basis points the current 5% level.
The data comes after figures today showed that UK grocery inflation eased for a fourth straight month in July, recording its steepest decline since it peaked in March this year. This will at least provide some relief to the squeezed households. Annual grocery inflation was 14.9% in the four weeks to July 9th.
The euro has remained resilient against the pound, supported by expectations that the European Central Bank will continue raising interest rates in Europe as well.
Eurozone inflation data is also due however this is the second reading for June so is not expected to be as market-moving. Expectations are for inflation to confirm the preliminary reading of 5.5% year on year in June, down from 6.1%. Meanwhile, core inflation is expected to rise to 5.4% from 5.3% in May.