- Pound (GBP) is falling after losses yesterday
- UK construction activity grew at its fastest pace in 2 years
- Euro (EUR) rises ahead of the ECB rate decision
- ECB is expected to cut rates by 25 bps
The Pound Euro (GBP/EUR) exchange rate is rising after four days of losses. The pair fell -0.06% in the previous session, settling on Tuesday at €1.1733 and trading in a range between €1.1729 and €1.1762. At 16:00 UTC, GBP/EUR trades 0.22% at €1.1758.
The Euro is rising as investors look ahead to the European Central Bank’s interest rate decision, which will be taken short. The ECB is expected to cut interest rates by 25 basis points, taking the lending rate from a record 4% to 3.75%.
This will be the first ECB rate cut in almost five years and comes against an interesting backdrop for loosening monetary policy.
The ECB is set to cut interest rates as business activity expands at the fastest pace in almost a year, as unemployment has fallen to a record low, and as inflation has ticked higher to 2.6% year on year in May.
As a result, the ECB could ultimately revise its inflation forecast and may be reluctant to signal imminent further rate cuts.
Instead, the ECB could adopt a more cautious tone towards the future path of rate cuts, which could be supportive of the euro.
Meanwhile, investors have shrugged off weaker-than-expected eurozone retail sales which fell 0.5% month on month in April after rising 0.7% in March. The data highlights the pressure that households are under.
Meanwhile the pound is falling despite data showing that the UK construction sector grew at its fastest pace in almost two years.
The construction PMI rose to 54.3 in May, up from 53 in April, in a sign of recovery. However, it’s worth noting that the construction sector is small in the UK economy, which would explain the limited impact that the data has had on the pound.
The data comes after the services PMI, which is the dominant sector in the UK economy, fell back from an 11-month high in April at 52.9 and also showed that price pressures eased.