- Pound (GBP) falls, extending losses from last week
- The market prices in 60 bps of cuts this year.
- Euro (EUR) is rising after less dovish ECB comments
- Holzmann doesn’t see a rate cut as a full-gone conclusion
The Pound Euro (GBP/EUR) exchange rate is falling on Monday after losses last week. The pair fell 0.58% in the previous week, settling on Friday at €1.1841. It traded in a range between €1.1823 and €1.1930. At 11:30 UTC GBP/EUR trades -0.17% lower at €1.1819.
The pound fell to a five-month low against the euro on Monday, even as it rose against the US dollar. Recent data and comments from Bank of England officials are leading investors to increase their bets on rate cuts from the Bank of England.
Last week’s data showed that UK retail sales fell by 0.3% month on month in December, defying expectations of a rise. Meanwhile, inflation also unexpectedly cooled. Service sector inflation, which is watched closely by the Bank of England, dropped sharply to 4.4%.
The markets are currently pricing in 62 basis points worth of cuts in 2025, up from around 40 basis points just before the inflation data.
Concerns about the UK’s fiscal outlook also put pressure on the pound. Falling gilt yields have helped to ease those worries as attention shifts to monetary policy divergence between the Bank of England and other major central banks.
The euro is pushing higher, boosted by the last dovish comments from ECB policymaker Robert Holzman, who said another rate cut is not a foregone conclusion.
His comments came after the latest inflation data on Friday, which showed that consumer prices were well above 2% in December at 2.4% year on year, unchanged from November.
However, Holzman’s comments contrast with the minutes of the ECB’s December meeting, which were released last week and confirmed the central banks’ easing bias.
The meeting minutes showed that the ECB debated the size of the rate cut between 50 basis points and 25 basis points, although they also showed a relatively optimistic outlook for growth and inflation. Policymakers see inflation reaching the 2% target sooner than initially expected.
The ECB is expected to cut rates by 25 basis points at its meeting at the end of this month.