- Pound (GBP) is falling for a second day
- UK house prices are rising
- Euro (EUR) rises after hotter inflation data
- ECB is still expected to cut in June
The Pound Euro (GBP/EUR) exchange rate is falling for a second straight day. The pair fell -0.02% in the previous session, settling on Thursday at €1.1752 and trading in a range between €1.1739 and €1.1767. At 10:00 UTC, GBP/EUR trades -0.2% at €1.1732. The pair is on track to fall -0.04% across the week after two consecutive weeks of gains.
The euro is rising after hotter-than-expected inflation in the eurozone region. Data shows that CPI rose 2.6% year on year in May, up from 2.4% in April and ahead of economists’ expectations of a rise of 2.5%
The increase in inflation is not expected to mark the beginning of a sustained rise, given that the tick higher in consumer prices is predominantly down to a 2023 change in German transport charges. This was evident in German inflation figures released earlier in the week. However, a rise in Spanish and French inflation does suggest that the ECB’s road to cooling target inflation to the 2% target will be bumpy.
The ECB is expected to cut interest rates by 25 basis points at the June 6 meeting, bringing the key interest rate down to 3.75% from 4%. The path for interest rates beyond that will likely depend on inflation, particularly in light of the record strength in the labour market.
Unemployment fell to 6.4%, its lowest level, and negotiated wages grew more than expected in the first quarter of the year, highlighting tightness in the jobs market.
The pound is falling against the stronger euro amid a quiet day for high-impacting UK economic data.
Investors are instead digesting the news that British house prices rose in May after falling in the previous two months. According to Nationwide data, prices increased 0.4% from April. On an annual basis, prices are up 1.3%, a larger increase than expected.
The UK housing market is showing some resilience despite the continuing affordability pressures amid high interest rates.
The housing market in the UK slowed last year as the Bank of England lifted interest rates to the highest level in 16 years. However, the central bank is expected to start lowering borrowing costs in the summer.