- Pound (GBP) is rising for a second day
- UK GDP rose 0.4% MoM in May
- Euro (EUR) falls after German inflation cools
- French politics remain in focus
The Pound Euro (GBP/EUR) exchange rate is rising for a second day. The pair rose 0.34% in the previous session, settling on Wednesday at €1.1859 and trading in a range between €1.1818 and €1.1870. At 13:00 UTC, GBP/EUR trades +0.06% at €1.1864.
The pound is heading higher after the UK economy grew stronger than expected in May, reducing expectations of a summer rate cut by the Bank of England.
According to the Office of National Statistics data, the UK economy returned to growth in May, with GDP rising 0.4% month over month, up from 0% in April.
This was ahead of the 0.2% monthly growth that economists predicted.
The UK’s dominant service sector showed growth of 0.3%, while production rose 0.2% and construction rebounded by 1.9%.
These figures will be well received by the incoming Labour government as Prime Minister Keir Starmer begins his first week on the job. The party hopes that a strong Labour victory could provide a platform for stability, boosting economic growth.
The GDP data comes after Bank of England chief economist Huw Pill yesterday said that he was uncomfortable with persistent inflation. Here, Pill referred to service sector inflation, which remains at almost 6% even though headline inflation has cooled to 2%.
The market is now only pricing in a 50% probability of a rate cut in August, down from 60% at the start of the week.
The euro is heading lower after data confirmed that German inflation cooled to 2.2% in June, which aligns with the preliminary reading.
The data comes after the ECB cut interest rates in June but has failed to commit to the timing of further cuts.
There is no more high-impacting eurozone data to be released today. Attention will continue to focus on France’s election result and complex negotiations to form a government. However, developments are few as lawmakers from the New Popular Front, which won the most votes in the election, have angrily responded to President Emmanuel Macron’s letter calling for mainstream parties to form a new coalition.