GBP/USD: Both US & UK Retail Sales Impress
  • Pound (GBP) falls after rising yesterday
  • BoE leaves interest rates unchanged
  • Euro (EUR) rises despite German retail sales plunging -1.6%
  • German inflation data is due shortly

The Pound Euro (GBP/EUR) exchange rate is falling for a second straight day. The pair fell -0.20% in the previous session, settling on Tuesday at €1.1705 and trading in a range between €1.1667 – €1.1744. At 09:00 UTC, GBP/EUR trades -0.05% at €1.1703.

The pound is falling across the board on Wednesday ahead of the Bank of England’s interest rate decision tomorrow. Sterling has been one of the better performances in the G10 so far this year on bets that sticky inflation will mean the Bank of England will cut interest rates later than its major peers.

Investors have slashed the number of interest rate cuts they expect from the central bank this year, pricing around 100 basis points worth of cuts in 2024.

On the data front, the economic calendar is quiet, although house price figures showed that house prices rose this month by more than what economists had expected.

The Nationwide house price index in January rose by 0.7% compared to the previous month, well ahead of the 0.1% rise that analysts had forecast. This is an encouraging sign for the housing market, which is being supported by expectations that mortgage rates will continue to trend lower.

The Bank of England is expected to leave interest rates at 5.25% on Thursday. There is a chance that it will, though, with some of its inflation forecasts, which could give scope to start cutting rates from the middle of this year.

The euro is heading higher after losses in the previous session and despite German retail sales slumping in December.

German retail sales unexpectedly plunged 1.6% month on month in the final month of 2023, surprising economists who had expected a rebound of 0.7%. This was also significantly down from a 0.8% decline in November.

The data highlights the squeeze on households as inflation remains elevated and interest rates are at a record high.

German inflation data is due out later today and is expected to show that consumer prices cooled to 3% year on year in January, down from 3.7% in February. Cooling inflation supports the view that the ECB could start to cut interest rates sooner rather than later