- Pound (GBP) is falling for a third day
- UK CPI jumped to 3.5% YoY, up from 2.6%
- Euro (EUR) rises but gains could be limited
- The ECB will likely cut rates again in June
The Pound-Euro (GBP/EUR) exchange rate is falling for a third straight day. The pair fell by -0.13% in the previous session, settling on Tuesday at €1.1868. It traded between €1.1859 and €1.1899. At 10:30, GBP/EUR trades -0.22% at €1.1840.
The pound is falling against the euro but rising against the US dollar to a three-year high after UK inflation was hotter than expected in April.
Data from the Office for National Statistics showed that the UK consumer price index rose 3.5% year on year in April, jumping from 2.6% in March, marking the highest level since January 2024. A rise in utility bills and airfares contributed to the increase in inflation, which analysts had expected to rise to 3.3%
Service sector inflation was also strong, hot at 5.4%, well above the 4.8% forecast. The Bank of England has warned that sticky service sector inflation has been an obstacle to cutting interest rates more aggressively. The data means that a June rate cut is highly unlikely; the bar is certainly high for a rate cut in August.
The euro is rising against the pound; however, its gains could be limited given the differential in rate cut expectations between the ECB and the Bank of England.
The ECB is widely expected to continue cutting rates by 25 basis points in the June meeting as consumer inflation hovers around the central bank’s 2% target.
Yesterday’s data showed that the German producer price index, which measures inflation at the factory gate level, fell 0.9% year on year after falling 0.2% in March. The data points to weakening demand, supporting the ECB’s more dovish stance.
ACB chief economist Philip Lane is due to speak later today and could provide more clues on the outlook for interest rates over the coming months.