- Pound (GBP) is rising, adding to last week’s gains
- The first BoE rate cut is expected in September
- Euro (EUR) looks to ECB Lagarde’s speech
- German IFO export sentiment improved
The Pound Euro (GBP/EUR) exchange rate is holding steady after gains last week. The pair rose +0.84% in the previous week, settling on Friday at €1.1517 and trading in a range between €1.1409 – €1.1534. At 09:00 UTC, GBP/EUR trades +0.02% at €1.1519.
The pound is holding on to last week’s gains after Bank of England governor Andrew Bailey said that getting inflation back down to the central’s 2% targets will be hard work.
While the initial falling inflation had been due to the unwinding of a jump in energy costs last year, the remainder needs to be done by policy and monetary policy, in other words, restricting the economy.
The Bank of England kept interest rates on hold for a second straight meeting in November after 14 consecutive rate hikes to bring inflation down from a peak of 11% just over a year ago.
Inflation is currently sitting at 4.6% year on year in October but is still over double the Bank of England’s 2% target. The central bank doesn’t expect inflation to return to 2% until the end of 2025.
Andrew Bailey repeated the message that he considered it too soon for the central bank to be thinking about cutting interest rates.
The market is currently pricing in its first full interest rate cut by the Bank of England in September next year.
The euro edging lower has some investors focused on a speech by ECB president Christine Lagarde, who will speak later today.
Christine Lagarde is not expected to change her stance on interest rates or inflation after saying on Friday that it’s too early for the central bank to think about cutting interest rates.
On the data front, German export sentiment improved in November, according to the latest Ifo survey.
The institute’s export expectations indicator rose to -3.8 in November, up from -6.3 in October.
The data comes after the Ifo business climate data on Friday showed that sentiment improved for a second straight month. The data suggests that the downturn in the German economy may have bottomed out.
