- Pound (GBP) falls to a 2-week low
- The BoE could cut rates more aggressively
- Euro (EUR) rises ahead of PMI & PPI data
- The ECB is expected to cut rates again in October
The Pound Euro (GBP/EUR) exchange rate is falling on Tuesday after yesterday’s gains. The pair rose +0.07% on Wednesday, settling at €1.2011 and trading in a range between €1.1990 and €1.2020 Today, at 10:15, GBP/EUR trades -1.18% at €1.1880.
The pound is falling sharply against the euro and the US dollar after Bank of England governor Andrew Bailey made dovish comments.
In an interview with the Guardian newspaper, Bailey said that the central bank could become more aggressive with rate cuts if inflation data supports that. However, he also warned that the conflict in the Middle East could lift oil prices, which may result in higher inflation.
Still, the pound had been trading higher against its major peers on expectations that the Bank of England would be slower at cutting interest rates. However, following Bailey’s comments, the markets are now pricing in a 90% probability of a 25 basis point cut in November.
Attention will also be on UK composite PMI data. However, this is the final release for September, so it doesn’t tend to be as market-moving as the preliminary reading.
The euro is inching higher against the weaker pound but is falling against the US dollar ahead of eurozone wholesale inflation figures.
Wholesale inflation as measured by the producer price index, is expected to fall again in September, dropping 2.4% year on year.
Cooler PPI bodes well for further declines in consumer price inflation. Data earlier this week showed that CPI eased to 1.8% year on year in September, down from 2.2%, marking the first time that CPI was below the central bank’s 2% target in three years.
The weaker inflation allows the ECB to cut interest rates by 25 basis points further at its meeting on October 17.
Today’s attention will also be on PMI data for the region, which is expected to confirm a contraction in September.
