- Pound (GBP) is rising despite falling shop inflation
- BRC shop inflation eased to 0.2% in June
- Euro (EUR) is falling as inflation cooled to 2.5%
- ECB President Christine Lagarde is due to speak
The Pound Euro (GBP/EUR) exchange rate is rising on Tuesday after 4-days of losses. The pair fell 0.19% in the previous day, settling on Monday at €1.1774 and trading in a range between €1.1764 and €1.1818. At 13:00 UTC, GBP/EUR trades +0.21% at €1.1798.
The euro is falling after eurozone inflation cooled in line with the forecast, providing some relief to the European Central Bank after cutting interest rates last month.
Eurozone inflation slowed by 2.5% year over year in June, cooling from 2.6% in the previous month. The data shows that inflation resumed a downward trend after an acceleration in May.
Inflation is again on the right track, although policymakers will remain concerned by the strong rise in service sector prices, partly offset by cooling energy and fresh food costs.
Service sector inflation was 4.1% annually in June, matching a seven-month high reached in May.
The data means that the ECB is unlikely to cut interest rates again at the July meeting and will likely want to see further signs of inflation cooling towards the 2% target before cutting interest rates again, potentially in September.
Looking ahead, investors will focus on ECB president Christine Lagarde’s speech, which could give further clues about the timing of the next ECB rate cut. In yesterday’s speech, she confirmed that a consecutive June-July rate cut was unlikely.
The pound is pushing higher against the weaker euro but is struggling against the US dollar after data showed that prices in UK shops rose at the slowest pace in almost three years in June.
According to data from the British Retail Consortium, annual shop price inflation slowed to 0.2% month on month in June, down from 0.6% in May, marking the smallest increase since October 2021.
The data comes as the Bank of England assesses whether price pressures have eased sufficiently for it to cut interest rates for the first time since 2020. While UK consumer price index inflation has cooled to 2%, service sector inflation remains hot at almost 6%.
The markets are currently pricing in around a 60% probability of the Bank of England cutting interest rates by 25 basis points on August 1st from 5.25 to 5%.
