- Pound (GBP) falls after gains yesterday
- BoE is expected to leave rates on hold
- Euro (EUR) rises after core inflation cooled by less than forecast
- EZ manufacturing PMI contracted in January
The Pound Euro (GBP/EUR) exchange rate is falling, giving back yesterday’s gains. The pair rose +0.16% in the previous session, settling on Wednesday at €1.1724 and trading in a range between €1.1697 – €1.1740. At 11:00 UTC, GBP/EUR trades -0.30% at €1.1689.
The pound is falling as investors look ahead to the Bank of England interest rate decision and after the Manufacturing PMI data came in slightly better than expected in January.
The manufacturing PMI was revised to 47 up from 46.9 in the preliminary reading and up from 46.2 in December. The level 50 separates expansion from contraction so despite the upward
Revision: the sector is still contracting.
Attention is turning to the Bank of England’s interest rate decision. The central bank is widely expected to leave interest rates on hold at the 15-year high of 5.25% for the fourth straight month.
Given that, in the December meeting, three policymakers voted to increase interest rates, the likelihood of alright cat is very slim. Inflation in the UK has proved to be sticky rising to 4%.
Instead, attention will be on fresh projections from the central bank. Since the last projections in November, inflation has eased by more than expected, and growth has slowed by more than expected, which could suggest that the Bank of England may begin its very slow pivot toward a rate-cutting cycle.
The euro is rising after inflation cooled in line with expectations to 2.8% year on year, down from 2.9%, although core inflation proved to be stickier than forecast, easing to 3.3% from 3.4% in December but above the 3.2% that was forecast.
Sticky core inflation could keep the ECB from cutting interest rates sooner rather than later. While some policymakers believe that inflation may be under control, ECB president Christine Lagarde has been clear that she still considers the central bank has more work to do.
On the data front, eurozone manufacturing PMI figures confirmed the preliminary reading of 46.6, up from 44.4 in December. This is still showing a deep contraction in the sector.