GBP/EUR: Euro Rallies vs Pound On Policy Tightening Optimism
  • Pound (GBP) rises for a second day
  • UK inflation sees investors push back BoE rate cut bets
  • Euro (EUR) looks to the ECB meeting minutes
  • ECB President Lagarde will speak again

The Pound Euro (GBP/EUR) exchange rate is rising for a second straight day. The pair rose +0.22% in the previous session, settling on Wednesday at €1.1642 and trading in a range between €1.1601 – €1.1674. At 09:00 UTC, GBP/EUR trades +0.06% at €1.1648.

The pound is ticking higher for the second straight day as investors continue to digest yesterday’s stronger-than-expected inflation data.

The hotter-than-expected print has seen the market rein in Bank of England rate cut expectations for 2024, with the first rate cut not being fully priced in until June. At the same time, the chances of a March rate cut have been lowered to below 50% from significantly higher, even just last week.

The data supports the Bank of England’s more hawkish stance with Bank of England governor Andrew Bailey once again pushing back on rate cut bets this week.

Looking ahead, there are no major UK economic data releases today, attention is turning to tomorrow’s UK retail sales data, which are expected to fall 0.5% month on month in December. The weaker-than-expected retail sales could raise concerns over the health of the consumer and a deteriorating economic outlook.

The euro is falling for a second straight session amid a lack of fresh economic data. The focus has been on the ECB rate cut expectations, with plenty of ECB officials speaking at the World Economic Forum in Davos this week.

ECB president Christine Lagarde is due to speak again today. When she spoke yesterday, she pointed to a possible summer rate cut, which is later than what the than the March rate cut that the market has been pricing in.

As well as ECB speakers, the minutes of the December ECB meeting will be released today; however, they may be considered stale given the number of ECB policymakers who have been speaking over the past week and given that the ECB will meet again next week.

Even so, investors will scrutinize the minutes for any signs of conflict between the hopes and the doves over when interest rate cuts may begin.