GBP/EUR: Will UK Service Sector PMI Drag Pound Lower?
  • Pound (GBP) unchanged as grocery inflation eases to 4.5%
  • BoE’s Catherine Mann expects fewer rate cuts than the market
  • Euro (EUR) is steady as German consumer confidence improves
  • The ECB chief economist Philip Lane to speak

The Pound Euro (GBP/EUR) exchange rate is flat on Tuesday for a second straight day. The pair rose just 0.03% in the previous week, settling on Monday at €1.1658 and trading in a range between €1.1648 and €1.1657. At 10:00 UTC, GBP/EUR trades +0.01% at €1.1661.

The pound is holding steady as investors weigh up a slowdown in inflation grocery price inflation and slightly more hawkish comments from Bank of England policy maker Catherine Mann.

UK grocery price inflation is 4.5% this month, down from 5.3% in the previous four weeks and marking its lowest level since February 2022.

Despite the cooling inflation prices, many households are still feeling the squeeze, with 23% of households identifying themselves as struggling financially.

Meanwhile, Bank of England policy maker Catherine Mann warns that the market is pricing in too many rate cuts for this year.

The market is currently pricing in three 25-basis-point rate cuts starting in August. Catherine Mann said that, in her opinion, there are too many cuts being priced in, and she said it would be hard to argue that the BOE would be ahead of the ECB or the Fed in cutting rates given the strong wage growth in the UK.

Meanwhile, the euro is holding steady as investors digest the latest German consumer confidence data. According to GfK, consumer confidence in the eurozone’s largest economy ticked higher to -27.4, up from -28.8 in March. The slight improvement in sentiment comes amid improving income expectations and despite uncertainties surrounding the economic outlook.

However, willingness to spend fell slightly, highlighting the lack of outlook for consumption. Falling willingness to spend supports the view that the ECB could start cutting interest rates sooner as it dampens demand-driven inflationary pressures.

Looking ahead, attention will be on ECB chief economist Philip Lane, who is due to speak again today. Yesterday, Lane said that he sees eurozone wage growth slowing to more normal levels. He also noted good progress and inflation falling towards the ECB’s 2% target.