- Pound (GBP) is rising despite mortgage lenders cutting rates
- BoE could cut rates as soon as August
- Euro (EUR) is falling amid political uncertainty
- German IFO business climate deteriorated
The Pound Euro (GBP/EUR) exchange rate is rising on Tuesday after losses yesterday. The pair fell 0.06% in the previous session, settling on Monday at €1.1817 and trading in a range between €1.1797 and €1.1831. At 18:00 UTC, GBP/EUR trades 0.22% at €1.1843.
The pound is rising despite the mortgage market becoming increasingly convinced that the Bank of England will start to cut interest rates in the August meeting.
Major UK banks are lowering their mortgage rates in anticipation of a rate cut by the Bank of England. NatWest Group lowered its mortgage rates on Friday. Barclays is doing so today, and HSBC is widely expected to follow suit and cut its mortgage rates as of tomorrow.
These moves come after the Bank of England’s interest rate decision last week. The central bank made a notable shift in tone, lifting market expectations of a rate cut sooner rather than later.
The meeting came after inflation in the UK cooled back down to the central bank’s 2% target level. The service sector is proving to be stickier than expected, and wage growth still remains strong, which could keep some upward pressure on prices.
This week is a quiet week for UK economic data. Attention is firmly on the UK election campaigns, with voters heading to the polls on July 4th.
The Labour Party is widely expected to win with a 20-point lead in the polls. Given that the result is widely expected, it’s likely to have a huge impact on the pound, particularly given that neither party has much room for maneuvering as far as fiscal policies are concerned.
The euro is under pressure as the market looks ahead to the French elections; the first round of voting will begin on June 30th. Unlike in the UK, President Macon’s snap election has created a lot of political uncertainty in the region, unnerving the market.
According to the polls, the far-right party led by Marine Le Pen is expected to win, creating concerns over high spending and higher debt levels.
As well as political uncertainty, economic uncertainty is also dragging on the euro after data yesterday showed that business sentiment in the eurozone’s largest economy unexpectedly deteriorated, raising concerns over the momentum for recovery.
