- Pound (GBP) falls but is set to rise across the week
- UK house prices fall in August by 0.2%
- Euro (EUR) rises despite inflation easing to 2.2% YoY
- The ECB is expected to cut rates in September
The Pound Euro (GBP/EUR) exchange rate is falling after 7-days of losses. The pair rose +0.23% in the previous session, settling on Thursday at €1.1887 and trading in a range between €1.1855 and €1.1904. At 18:00 UTC, GBP/EUR trades -0.18% at €1.1870. The pair is on track to rise 0.5% this week marking the third straight weekly rise.
The euro is rising, recovering from a monthly low against the pound, despite eurozone inflation data cooling towards the ECB’s 2% target level.
Inflation, as measured by the consumer price index, cooled to 2.2% year on year in August, down from 2.6% annually in July. This was the lowest level in 3 years. Meanwhile, core inflation eased to 2.8% from 2.9%.
Cooling inflation supports the view that the ECB could cut interest rates again in the September meeting. The ECB reduced interest rates by 25 basis points in June and hasn’t committed to a fixed path for further reducing rates.
However, ECB policymakers have suggested that the central bank could reduce rates again soon, particularly given easing inflation and the deteriorating economic outlook.
Recent data from Germany, the eurozone’s largest economy, contracted in Q2 and that consumer confidence is set to tumble further in September.
The market is now fully pricing in a 25 basis point rate cut by the ECB next month.
Meanwhile, the pound is falling after booking gains most of this week despite a quiet economic calendar.
House price figures today showed that house prices fell in August for the first time since April, but the outlook for the housing market is expected to strengthen. House prices slipped 0.2% month on month. Providing the economy continues to recover, then the backdrop for the housing market is encouraging.
The pound remains supported by expectations that the Bank of England will keep interest rates reduce interest restrictive until cutting again in November.
