- Pound (GBP) is falling after the BoE rate decision
- 2 policymakers voted for a larger 50 bps rate cut
- Euro (EUR) rises after German factory orders jump
- Eurozone retail sales slump -0.2% MoM
The Pound Euro (GBP/EUR) exchange rate has fallen sharply lower, after a flat finish yesterday. The pair fell 0.01% in the previous session, settling on Wednesday at €1.2022. It traded in a range between €1.1994 and €1.2044. At 12:30 UTC GBP/EUR trades -0.5% lower at €1.1956.
The pound is falling lower after the Bank of England cut interest rates by 25 basis points to 4.5%, in line with expectations. However, there was a distinctly dovish twist to the vote, with all members of the MOC voting to cut rates, and two, including known hawk Catherine Mann, voting to cut rates by a larger 50 basis points reduction to 4.25%.
However, this was in contrast to the inflation outlook, as the central bank revised its inflation forecasts and now sees CPI peaking at 3.7% in Q3 of this year, almost a full percentage point higher than the earlier projection of 2.8%. However, given the vote, policymakers see this inflation rise as temporary. The Bank of England also projected growth of 0.75% in 2025, reflecting weak business and consumer sentiment.
Following the announcement expectations surrounding a March cut jumped to 42%. Meanwhile the market is now pricing in a 94 basis points worth of cuts for 2025 meaning they see another three base rate cuts this year.
The euro is rising after German factory orders soared 6.9% month on month in December raising hopes that the economic slowdown is bottoming out. The data came after German PMI figures earlier this week showed the composite PMI still below the 50 level indicating contraction.
The encouraging news from Germany overshadowed weaker than expected eurozone retail sales which failed to grow for a third straight month in December. Eurozone retail sales fell 0.2% month on month following a flat reading in November and a 0.3% fall in October.