- Pound (GBP) falls as inflation cools to 4.6%
- BoE likely at the end of the hiking cycle
- Euro (EUR) rises despite weak German wholesale prices
- Eurozone trade balance is due
The Pound Euro (GBP/EUR) exchange rate is falling, snapping two days of gains. The pair rose +0.1% in the previous session, settling on Wednesday at €1.1485 and trading in a range between €1.1454 – €1.1509. At 09:00 UTC, GBP/EUR trades -0.06% at €1.1478.
The pound is falling after UK inflation data cooled by the most in two years, raising expectations that the Bank of England has ended its interest rate hiking cycle.
UK consumer prices rose by 4.6% year on year in October, down significantly from 6.7% in September, and marked the slowest pace of inflation since 2021.
Delving deeper into the numbers, both core and services inflation, which are closely watched by policymakers at the Bank of England for signs of underlying inflation, came in weaker than expected.
Core inflation, which strips out more volatile items such as food and fuel slowed to 5.7% yearly, down from 6.1%. The data comes after yesterday’s jobs figures, which showed that while vacancies fell by 43,000 in the third quarter, wage growth remains stubbornly high at 7.9%, only slightly down from the record 8.1%.
Progress is slow, but consumer inflation is falling steadily towards the 2% target, which could take around another year.
As a result, the Bank of England is still expected to leave interest rates at their current level of 5.25% until the second-half of next year. The market is pricing in a 25 basis point cut in June, with three interest rate cuts now expected across 2024.
The euro is pushing higher after losses yesterday. Data on Tuesday confirmed that the eurozone economy contracted 0.1% quarter on quarter in the July to September.
However, it wasn’t all bad news, as this was offset by stronger-than-expected German EW economic sentiment, which rose for a fourth straight month, indicating that the German economy could start to improve over the coming six months.
Today, German wholesale prices fell 0.7% month on month in October after rising 0.2% in September. The weak data adds to expectations that the ECB has also finished hiking interest rates.
Looking ahead, the eurozone trade balance will be in focus and is expected to widen to €22.3 billion.
