- Pound (GBP) falls after 2-days of gains
- UK GDP remained at 0%
- Euro (EUR) is rising, but gains could be capped
- ECB rate decision is tomorrow
The Pound Euro (GBP/EUR) exchange rate is falling, snapping a two-day winning run. The pair added 0.19% in the previous session, settling on Tuesday at €1.1868 and trading in a range between €1.1836 and €1.1872. At 11:00 UTC, GBP/EUR trades -0.18% at €1.1847.
The pound is falling following UK GDP data, which showed that the UK economy stalled for a second straight month in July. GDP was 0%, below economists’ expectations of 0.2% growth. UK GDP has stagnated in three of the past four months. Meanwhile, UK industrial production unexpectedly declined by 0.8%
The data will be a blow for newly elected Prime Minister Sir Keir Starmer and his Labour Party, which are counting on economic growth to support public finances. Instead, chancellor of the Exchequer Rachel Reeves is facing headwinds ahead of next month’s budget.
The data comes after mixed UK jobs data yesterday, which showed that unemployment ticked lower to 4.1% and job creation was stronger than expected. However, wage growth slowed, a sign that price pressures are easing.
The Bank of England is not expected to cut interest rates in the September meeting. Still, the market expects the central banker to reduce rates by 25 basis points in the November meeting and possibly again in the December meeting.
The euro is heading higher against the pound and the US dollar. However, gains could be limited ahead of tomorrow’s European Central Bank rate decision.
The ECB is widely expected to cut interest rates by 25 basis points, taking the main lending rate to 3.5%.
Data yesterday confirmed that inflation in Germany, the eurozone’s largest economy, dropped below the ECB’s 2% target, decreasing from 2.3% to 1.9%. This marks the lowest level of inflation in three years, making it easier for the ECB to cut rates.
