- Pound (GBP) is falling after losses last week
- The BoE may cut rates more aggressively next year
- Euro (EUR) is rising despite French political concerns
- The French CAC falls for a second straight day
The Pound-Euro (GBP/EUR) exchange rate is inching lower after gains yesterday. The pair rose 0.41% in the previous session, settling on Monday at €1.1585. It traded between €1.1527 and €1.1593. At 14:30 UTC on Monday, GBP/EUR trades -0.08% at €1.1576.
The pound fell on Tuesday as investors continued to digest comments by Bank of England Governor Andrew Bailey made over the weekend. Speaking at the Federal Reserve conference in Wyoming, Bailey warned of the acute challenges posed by weak growth and sticky inflation amid a declining labor force participation.
His warning came after data today showed that UK shop prices rose by the most since March 2024, adding to the Bank of England’s concerns.
The data from the British Retail Consortium showed that shop prices rose by 0.9% compared with August 2024, driven by a 4.2% in food prices, the largest since February last year.
The Bank of England cut interest rates by 25 basis points in August but may not be able to cut rates again until next year, due to sticky inflation.
The euro is rising amid a quiet economic calendar, although bills appear to be lacking conviction.
Data released yesterday showed that German business sentiment improved in August to its highest level in over a year. However, ECB President Christine Lagarde remains cautious about the growth outlook for the region.
Meanwhile, the EUR is brushing off rising concerns over the political situation in France, where there are growing concerns that the minority government could collapse next month in a vote of no confidence.
The vote on September 8th comes in response to French leader Bayrou’s sweeping debt-cutting plans to save €44 billion by the end of 2026.
Political uncertainty is hitting French stocks, which are trading sharply lower for a second straight day. The CAC 40 closed 1.6% lower, adding to a 1.5% drop yesterday.