- Pound (GBP) is falling after 4 days of gains
- BoE’s Pill warned that he considers that rates are being cut too fast
- Euro (EUR) rises even as German PPI falls
- The ECB will likely cut rates again in June
The Pound-Euro (GBP/EUR) exchange rate is falling after four straight days of gains. The pair rose 0.02% in the previous session, settling on Monday at €1.1893. It traded between €1.1816 and €1.1917. At 14:30, GBP/EUR trades -0.18% at €1.1876.
The pound is falling as the market continues to weigh up the UK-EU Brexit reset deal despite hawkish comments from the Bank of England’s chief economist, Huw Pill. Pill warned that he is concerned over the pace of interest rate cuts, assessing that it’s too fast given the upside risks to inflation.
Huw Pill was one of two policymakers who voted to leave interest rates on hold earlier this month, skipping the quarterly rate cut. He highlighted concerns over the impact of wage resistance on prices as a reason for being cautious over cutting interest rates too fast. UK wage growth remains elevated at 5.6%, a level which is not in line with inflation cooling back to a 2% target level.
Meanwhile, data also showed that UK petrol prices fell again last week, with unleaded dropping to the lowest level since July 2021, according to data from the Department of Energy Security, and then to zero. Crude oil prices plunged through April and early May amid a worsening economic outlook owing to trade wars and increased supply from OPEC.
Meanwhile, the euro is rising even as German wholesale inflation rises more than expected. German PPI, which measures inflation at the factory gate level fell by 0.9% on an annual basis in April, more than the forecast 0.6% decline. The figure follows a 0.2% decline in the previous month.
Lower energy prices are the main reason for the full decline, with energy prices declining 6.4% year on year.
PPI is often considered a lead indicator for CPI inflation. The CPI in Germany and the eurozone is already close to 2%. The data support the view that the ECB will continue cutting rates in the June meeting.