- Pound (GBP) is rising after losses yesterday
- BoE likely to cut rate in November
- Euro (EUR) is falling ahead of the ECB rate decision
- The ECB is expected to cut rates by 25 basis points
The Pound Euro (GBP/EUR) exchange rate is rising after losses yesterday. The pair fell 0.36% in the previous session, settling on Wednesday at €1.1958 and trading in a range between €1.1931 and €1.2012. At 11:00 UTC, GBP/EUR trades +0.1% at €1.1970.
The pound has stabilized after yesterday’s sell-off following week than expected UK inflation data.
With inflation now below the Bank of England’s 2% target level, the central bank is almost certain to cut interest rates in November and potentially again in December. The market is pricing 42 basis points worth of cuts by the end of the year.
Should service sector inflation continue to trend lower, the Bank of England could cut rates to 3% next year, which is lower than the previously expected 3.5 to 3.75% range.
There is no high-impacting UK data due to be released today.
The euro is falling in cautious trade as investors await the European Central Bank’s interest rate decision, which will be announced at 12:15 GMT.
The central bank is expected to cut interest rates by 25 basis points, taking the base rate to 3.25%. This will mark the third rate cut from the ECB since it started reducing rates in June and the first back-to-back rate cut from the central bank since 2013.
The ramping up of interest rate cuts comes as the ECB has shifted its focus away from inflation and towards the growth outlook.
With inflation below the central bank’s 2% target at 1.7% year on year in September. Meanwhile, October PMIs point to a continued deterioration in the economic outlook after the ECB lowered its economic outlook for the region in its previous meeting.
Given that the rate cut is already priced in the market, the market will focus on the ECB’s guidance. A dovish sounding ECB could pull the euro lower.
