- Pound (GBP) is flat after losses yesterday
- UK construction PMI contracted in May
- Euro (EUR) is unchanged after the rate decision
- The ECB President said that the end of the rate-cutting cycle is near
The Pound-Euro (GBP/EUR) exchange rate is unchanged after yesterday’s losses. The pair fell by 0.19% in the previous session, settling on Tuesday at €1.1865. It traded between €1.1856 and €1.1896. At 17:30, GBP/EUR trades -0.01% at €1.1866.
The euro is unchanged after the European Central Bank cut interest rates by 25 basis points, marking the eighth straight rate cut by the central bank. This brought the deposit rate to 2%.
The move was widely expected as inflation in the eurozone fell to 1.9% year on year in May, below the ECB’s 2% target level. The ECB also lowered its inflation forecasts for 2026 to 1.6% down from 1.9% previously and lowered the growth outlook to 1.1% from 1.2%. The weak outlook comes amid the uncertainty created by Trump’s trade tariffs.
However, ECB president Christine Lagarde said in the meeting that the central bank had nearly concluded its latest monetary policy cycle. The cycle has seen the central bank lower interest rates from 4% since June last year. Her comments saw the market rein in rate cut expectations, with the market now pricing in just one further rate cut in the second half of the year.
The pound was unchanged despite signs of weakness in the construction sector. The construction PMI rose to 47.9 in May, up from April’s 46.6. Level 50 separates contraction from expansion. This was the fifth straight month that the index has been below that key 50 level. Delving deeper into the data, there was sustained production output as well as staff hiring. British construction firms reduced staff numbers last month at the fastest pace in five years due to higher wage costs and lower demand.
Meanwhile, a survey by the Bank of England showed that few British businesses now expect to be directly impacted by recent changes in U.S. trade policy. Only 12% of British businesses named it as one of the top three sources of uncertainty, down from 22% a month earlier.
The improved mood comes after the UK and the US agreed a trade pact in early May, allowing the UK to secure partial exemption from tariffs.