- Pound (GBP) falls after two days of losses
- UK CPI eases to 2.6% YoY from 2.8%
- Euro (EUR) rises as the USD falls further
- ECB rare decision tomorrow
The Pound-Euro (GBP/EUR) exchange rate is falling on Wednesday, snapping a two-day winning run. The pair rose 0.83% in the previous session, settling on Tuesday at €1.1716. It traded between €1.1618 and €1.1717. At 17:00 UTC, GBP/EUR is trading 0.82% higher at €1.1621.
The pound is falling against the euro but rising against the US dollar as investors digest the latest inflation data from the Office for National Statistics. The figures show that UK CPI cooled by more than expected to 2.6% year on year in March, down from 2.8% in February and below forecasts of 2.7%. The slowdown was driven by cheaper computer games and falling fuel prices, whilst food costs remain unchanged. Service sector inflation, which is being watched closely by the Bank of England, fell to 4.7%, down from 5%, which was below expectations of 4.9%
The data followed signs of a cooling labour market on Tuesday and is the final inflation print before the Bank of England’s next policy decision on May 8.
The market is pricing in a 90% probability that the central bank will cut rates by 25 basis points.
The data also comes ahead of an increase in council tax, energy, and water bills over the coming months, which, according to the BOE, will push inflation to well over 3% by the summer.
The euro is rising, benefiting once again from a sell-off of the US dollar as the US-China trade war continues to spark concern. Trump’s administration placed restrictions on NVIDIA chip exports to China, the latest development in a trade war between the two largest economies.
On the date front, eurozone inflation was confirmed at 2.2% in March, down from 2.3% in February. The data comes ahead of the ECB rate decision tomorrow, when the central bank is expected to cut rates by 25 basis points. This would mark the third rate cut by the central bank this year.