- Pound (GBP) fell as BoE rate expectations rise
- Inflation expectations cooled to 3.4%
- Euro (EUR) rises after German IFO sentiment improves
- The ECB chief Lagarde will speak later
The Pound Euro (GBP/EUR) exchange rate is inching higher at the start of the week after losses last week. The pair fell -0.33% in the previous week, settling on Friday at €1.1658 and trading in a range between €1.1623 €1.1726. At 10:00 UTC, GBP/EUR trades +0.09% at €1.1664.
The pound fell last week against its major peers on expectations that the Bank of England will start to cut interest rates in June.
Last week, the Bank of England held interest rates at 5.25% on Thursday, and Bank of England governor Andrew Bailey said inflation is moving in the right direction for interest rate cuts.
The market is now pricing in a roughly 75% probability that the Bank of England cuts rates by June, up from 35% at the start of last week. Investors have also been encouraged by signs that inflation in the UK is falling faster than expected after dropping to 3.4% year over year in February, down from 4% in January.
Looking ahead, no major UK economic data are due to be released today; however, Bank of England policymaker Catherine Mann is due to speak later and could influence the pound.
Looking out across the week, this week is a quieter week as far as UK economic data is concerned, which could leave the pound drifting lower.
The euro traded at a nine-week high against the pound after better-than-expected data from Germany on Friday. The Ifo business climate indicator for Germany rose to 87.8 in March, up from 85.7 the previous month and surpassing expectations of 86.
The data highlights an improvement in business morale that has been ongoing since June last year. As price pressures ease, companies adopt an increasingly optimistic stance.
Looking ahead today, attention will be on ECB policymakers, with President Christine Lagarde due to speak. Her comments will be watched closely for any clues about the future path of interest rates. Several ECB policymakers, including Christine Lagarde herself, have pointed to a June rate cut.
