- Pound (GBP) is rising after losses yesterday
- Investors push back rate cut expectations
- Euro (EUR) falls after inflation data
- Eurozone inflation (CPI) rose in July
The Pound Euro (GBP/EUR) exchange rate is rising after losses yesterday. The pair fell -0.21% in the previous session, settling on Monday at €1.1718 and trading in a range between €1.1716 and €1.1756. At 10:00 UTC, GBP/EUR trades +0.1% at €1.1730.
The pound is pushing higher, recovering from losses yesterday amid a quiet day on the economic calendar and as the market pushes back Bank of England rate cut expectations.
Despite the lack of fresh data, the market has lowered its expectations of a rate cut in the September meeting to a one-in-five probability. Investors are just about fully pricing in another rate cut in November. Looking further out, a December rate cut is seen as a 50/50 probability, down from 80% previously.
Given the lack of fresh fundamentals for investors to sink their teeth into attention will be turning to Thursday’s business activity data as measured by the PMI indices.
Economists expect the services PMI to rise to 52.8 in August up from 52.5 in July.
Meanwhile the euro is falling as investors digest the latest inflation figures from the region.
Eurozone inflation, which is measured by the consumer price index, rose to 2.6% year on year in July, up from 2.5% in June. The data is in line with the preliminary reading.
Meanwhile, German wholesale inflation data measured by the producer price index (PPI) fell by 0.8% in July after falling 1.6% year on year in June. Falling wholesale inflation bodes well for continued easing in consumer price inflation (CPI).
The data comes as the ECB continues to consider when to cut interest rates further. Finnish central bank governor Olli Rehn said that the ECB will need to cut rates again in September due to the weakening growth outlook.
The market currently prices in a 90% probability that the ECB will reduce rates by 25 basis points in September after cutting rates by 25 basis points in June.
Investors will now look ahead to the release of the ECB meeting minutes and PMI data next month for further clues about the ECB.
