- Pound (GBP) rises after losses yesterday
- Inflation cooled to 3.2% YoY from 3.4%
- Euro (EUR) falls as inflation cools to 2.2%
- The ECB President Lagarde will speak later
The Pound Euro (GBP/EUR) exchange rate is rising after losses yesterday. The pair fell -0.12% in the previous session, settling on Tuesday at €1.1698 and trading in a range between €1.1694 and €1.1729. At 10:00 UTC, GBP/EUR trades +0.17% at €1.1718.
The pound is rising after UK inflation fell by less than expected in March raising questions over when the Bank of England may start to cut interest rates.
According to the latest CPI data, inflation eased to 3.2% year on year, down from 3.4% in February. While this was the lowest level since September 2021 it was also above expectations of 3.1%.
The data suggests that UK inflation is on the right trajectory; however, core inflation and services inflation were also disappointing. This, combined with yesterday’s still strong pay growth, raises questions over whether the Bank of England can cut interest rates in June.
Yesterday’s data showed that the UK unemployment rate jumped unexpectedly, but wage growth only fell modestly to 6%, down from 6.1%.
It is worth remembering that a sharper drop in CPI is expected next month after Offgem’s 12% cut to its price cap in April will mean inflation will fall.
However, the market has now priced at just one rate cut this year, and there is only a 30% probability of a second rate cut. The repricing of rate cat expectations has boosted the pound.
Meanwhile, the euro is under pressure as inflation in the region cooled in line with forecasts to 2.4% year on year in March, down from 2.6% in February. The data was in line with the preliminary reading.
Attention will now turn to the ECB president, Christine Lagarde, who will speak later.
Investors will watch for further signals that the central bank will cut interest rates in June.
The market has been getting slightly more jittery about rate cut expectations after US inflation rose for a third straight month last week.
