- Pound (GBP) is rising after losses yesterday
- BoE Governor Andrew Bailey looks to cut rates gradually and carefully
- Euro (EUR) falls as Eurozone inflation cools to 1.9%
- The ECB will likely cut rates on Thursday
The Pound-Euro (GBP/EUR) exchange rate is rising after yesterday’s losses. The pair fell by 0.23% in the previous session, settling on Monday at €1.1836. It traded between €1.1833 and €1.1973. At 12:30, GBP/EUR trades 0.12% at €1.1850.
The pound is rising after cautious comments from Bank of England governor Andrew Bailey, who said he was sticking with the gradual and careful approach to cutting interest rates.
Bailey’s comments come after the Bank of England reduced rates to 4.25% in the main meeting, I made an increasingly cloudy outlook. Bailey said he had been surprised by recent inflation data and that the labour market has started to cool, which is a crucial requirement for further rate cuts.
Wage growth has remained at levels which are not consistent with inflation cooling to the central bank’s 2% target.
Andrew Bailey also said that he expected the strong economic growth seen in the January to March period to prove to be temporary. The GDP is expected to be 1% this year.
The euro is trading lower after inflation fell by more than expected, dropping below the ECB’s 2% target for the first time in seven months.
Inflation, as measured by the consumer price index, dropped to 1.9% year over year in May, down from 2.2% in April. This was below economists’ expectations of 2%. Meanwhile, core inflation, which removes more volatile items such as food and fuel, fell to 2.3% in May, down from 2.7% in April.
The cooling inflation comes as the central bank is set to make its next interest rate decision and update its inflation forecasts on Thursday. In the March meeting, the ECB forecast that inflation would hover above targets before falling to 1.9% next year.
The ECB is expected to cut rates by 25 basis points on Thursday, bringing the deposit rate to 2%, its lowest level in over two years. The market is pricing in two further quarter-point cuts by this time next year.
