- Pound (GBP) awaits the BoE rate decision
- The BoE may hike rates by 25 basis points
- Euro (EUR) looks to consumer confidence data
- ECB Christine Lagarde to speak
The Pound Euro (GBP/EUR) exchange rate is edging higher after losses in the previous session. The pair fell -0.2% in the previous session, settling on Wednesday at €1.1576 and trading in a range between €1.1536 – €1.1609. At 06:35 UTC, GBP/EUR trades +0.03% at €1.1579.
The pound is trading at around a monthly low against the euro ahead of the Bank of England interest rate decision this will be one of the closest decisions from the central bank in years.
At the start of the week, the market was pricing in a 90% probability of a 25 basis point rate hike from the BoE. However, the probability has fallen to just 50/50 after yesterday’s UK inflation data, which came in weaker than expected.
UK CPI cooled to 6.7% year on year in August, down from 6.8% in July. This was well ahead of expectations of an increase of 7%. Meanwhile, core inflation, which strips are more volatile items such as food and fuel fell 6.2% year on year, down from 6.9% and well below the 6.8% expected
As a result of cooler consumer prices and as the outlook for the UK economy deteriorates amid slowing growth, the market has become more convinced that the Bank of England will leave interest rates on hold, although economists still believe that the BoE will hike by 25 basis points to 5.5%
The euro pushed higher after German wholesale inflation came in slightly higher than expected, rising 0.3% month on month after falling 1.1% in the previous month.
Attention is turning to eurozone consumer confidence for September, which is expected to deteriorate further to -16.5, down from 16. Weak consumer confidence often goes hand in hand with more nervous households looking to rein in spending.
ECB president Christine Lagarde is due to speak. Investors will be listening closely after mixed messages from ECB officials about the future path of rate hikes.