GBP/EUR: Pound Heads Higher As EU To Mull Over Brexit Extension
  • Pound (GBP) eases after 2 days of gains
  • BoE expected to keep rates high for longer
  • Euro (EUR) rises after GDP data
  • German inflation figures due tomorrow

The Pound Euro (GBP/EUR) exchange rate is falling after two days of gains. The pair rose +0.04% in the previous session, settling on Wednesday at €1.1665 and trading in a range between €1.1657 – €1.1695. At 15:00 UTC, GBP/EUR trades -0.1% at €1.1655.

The pound has been outpacing the euro in recent weeks amid rising expectations that the Bank of England will keep interest rates high for longer.

A combination of persistently high inflation, which is still two and a half times the central bank’s target, along with a surprise expansion in the service sector in November and hawkish commentary from policymakers has the market believing that the central bank will leave interest rates at current levels of 5.25% until June next year.

The euro is rising towards the end of the week after the latest GDP data for the region confirmed that the economy contracted by 0.1% in the July to September period. This was in line with earlier readings and down from 0.1% growth in Q2.

The data comes after business activity data earlier in the week showed that the composite PMI, which is considered a good gauge for business activity, remained in contraction in November, raising expectations that the eurozone tipped into recession in the final quarter of the year.

Inflation in the region has cooled considerably, and attention will be on the German final inflation reading for November due tomorrow.

The European Central Bank meets next week, where the central bank is widely expected to leave interest rates at 4%. The focus will be very much on guidance from the ECB after policymakers this week have indicated that the next move by the central bank is likely to be a rate cut.

The market is currently pricing in a possible cut by the ECB as soon as March next year and around 150 basis points worth of cuts across the year.