- Pound (GBP) is rising for a third straight day
- Kantar’s data showed grocery inflation has risen 2.6%
- Euro (EUR) is despite a tick higher in German inflation
- ECB rate decision is on Thursday
The Pound Euro (GBP/EUR) exchange rate is rising for a third straight day. The pair rose 0.21% in the previous week, settling on Monday at €1.2079 and traded in a range between €1.2050 and €1.2095. At 12:00 UTC, GBP/EUR trades +0.3% at €1.2117.
The pound has risen to a 2024 high against the euro on expectations that the Bank of England will reduce interest rates more slowly than the European Central Bank.
The UK economy has shown signs of resilience compared to its European peers, and inflation is expected to be stickier following the Labour government budget.
Meanwhile, data today from Kantar showed that grocery price inflation rose to 2.6% in the four weeks to December 1, up from 2.3% in the previous four-week period.
The data comes after UK inflation rose to 2.3% year over year in October. The November data will be published on December 18th, the same week the Bank of England will announce its interest rate decision. Rising inflation makes another Bank of England interest rate decision unlikely at this point in time. The next rate cut may not come until February next year.
The euro is under pressure despite German inflation data confirming a small increase. German inflation figures confirmed the preliminary reading of 2.2% year on year, up from 2% in October. Core inflation rose to 3% from 2.9%. However, the data doesn’t deter from ECB rate cut expectations.
The ECB is expected to cut rates by 25 basis points this week. Some market participants believe that the central bank could take an even bolder approach and cut by 50 basis points, which could prompt a deeper sell-off in the euro.
A 50 basis point cut would suggest that the central bank is fearing for the eurozone’s economy.
Well, Q3 GDP held firm at 0.4%. Recent PMI data showed business activity tumbled to a 10-month low and into contraction territory.