- Pound (GBP) is rising after losses yesterday
- UK CPI was 2.2%, services inflation rose to 5.6%
- Euro (EUR) falls ahead of inflation data
- ECB are expected to continue cutting rates
The Pound Euro (GBP/EUR) exchange rate is rising after losses yesterday. The pair fell 0.25% in the previous session, settling on Tuesday at €1.1841 and trading in a range between €1.1826 and €1.1881. At 09:00 UTC, GBP/EUR trades 0.18% at €1.1862.
The pound is pushing higher following hotter-than-expected inflation data.
While headline inflation, as measured by the consumer price index (CP), remained at 2.2% year on year in August, in line with forecasts, core inflation, which excludes more volatile items such as food and fuel, was hotter than expected, at 3.6% year on year, up from 3.2%.
Meanwhile, service sector inflation, a gauge that the Bank of England is monitoring closely, was also hotter than expected, at 5.6% in August, up from 5.2%.
The data supports the view that the Bank of England will keep interest rates on hold at 5% tomorrow after reducing rates by 25 basis points in August in a vote of 5-4.
The market is pricing in another 25 basis point rate cut from the central bank in November, with potentially another cut in December.
Meanwhile, the euro is under pressure as investors look ahead to the release of eurozone inflation data.
Eurozone inflation is expected to confirm the preliminary reading of 2.2% year on year in August and 0.2% growth on a monthly basis in the same month.
The data comes after the ECB cut interest rates by 25 basis points last week and after comments from ECB governing council member Francoise Villeroy de Galhau, who said that the ECB is likely to continue to cut rates.
Yesterday, data showed that the German ZEW economic sentiment plunged in September to 3. 9, down from 19.2 in August. The dramatic drop points to a deteriorating economic outlook and raises concerns of a recession in the region.