- Pound (GBP) is falling after 3-days of gains
- UK inflation eased to 1.7% YoY from 2.2%
- Euro (EUR) is edging higher
- The ECB is expected to cut rates tomorrow
The Pound Euro (GBP/EUR) exchange rate is falling after 3-days of gains. The pair rose 0.26% in the previous session, settling on Tuesday at €1.2001 and trading in a range between €1.1965 and €1.2015. At 11:00 UTC, GBP/EUR trades -0.43% at €1.1949.
. The pound is tumbling after UK inflation data cooled by more than expected, setting the scene for further Bank of England interest rate reductions.
UK inflation, as measured by the consumer price index, eased to 1.7% year over year in September, down from 2.2% in August. This was below the 1.9% economists had expected. It’s also below the central bank’s 2% target level for the first time in three years.
Meanwhile, service sector inflation eased to 4.9% year on year, down from 5.6% and below forecasts of 5.2%. This marked the largest decline in service sector inflation since 2020.
Cooler-than-expected inflation will prompt the Bank of England to cut interest rates by 25 basis points in the November meeting.
It’s also worth recalling that Bank of England governor Andrew Bailey said at the beginning of this month that the Bank of England could be more aggressive in cutting rates if inflation data allowed it. Today’s inflation figures certainly seem to point to further rate cuts.
The market is pricing in 42 basis points worth of cuts before the end of the year.
The euro is rising against the pound but falling against the US dollar as investors await cautiously for tomorrow’s ECB interest rate decision.
The ECB is widely expected to cut interest rates by 25 basis points as inflation has cooled below the central bank’s 2% target and growth in the region shows signs of slowing. A dovish-sounding ECB could see the euro fall further.
The market will look for clues over the future path for interest rates, with more 25 basis point rate cuts expected heading into 2025.