- Pound (GBP) is rising for a fourth day
- UK shop prices fell at a slower pace in January
- Euro (EUR) falls as Trump talks about universal tariffs
- ECB rate decision is on Thursday
The Pound Euro (GBP/EUR) exchange rate is rising for a fourth straight day. The pair rose 0.16% in the previous session, settling on Monday at €1.1909. It traded in a range between €1.1873 and €1.1919. At 10:00 UTC GBP/EUR trades 0.18% higher at €1.1931.
The pound is rising as UK shop prices fell less quickly and as retailers see rising cost pressures. Prices in UK shops fell in January from December but did so at a less sharp pace, whilst food costs rose at the fastest monthly clip since April 2024.
The latest survey from the British Retail Consortium highlighted rising price pressures as the sector copes with the rising tax burden following the chancellor’s October budget.
Annual shop price inflation was 0.7% in January, less than the 1% decline seen in December. However, food prices rose 0.5% in January, well up from December’s 0.1% increase.
The data suggests that retailers might raise prices in response to Rachel Reeves’s announcement of higher Social Security contribution requirements and the hike to the minimum wage in October’s budget.
These rising costs come when the UK economy is also stalling, pointing to the UK falling into a stagflation trap.
The euro is falling amid renewed trade tariff concerns after President Trump said that he wanted universal trade tariffs much larger than 2.5% although he hasn’t decided on the level yet. His comments renewed trade worries, which had eased last week after Trump appeared to take a slightly less aggressive approach to trade tariffs than was feared.
Trade tariff talk is having a more significant influence on the euro than tomorrow’s ECB interest rate decision, where the central bank is widely expected to cut rates by 25 basis points and signal further rate cuts to come. Given that these moves have been priced in, trade chatter is likely to have more influence over EUR moves, particularly given that the European Union is in Trump’s firing line.