- Pound (GBP) is falling after gains yesterday
- UK CPI is expected to cool to 3.6%
- Euro (EUR) is rising after CPI cooled to 2.2%
- ECB is not expected to cut rates again.
The Pound-Euro (GBP/EUR) exchange rate is falling after two days of gains. The pair rose 0.04% in the previous session, settling on Tuesday at €1.1353. It traded between €1.1335 and €1.1357. At 15:00 UTC, GBP/EUR trades -0.06% at €1.1346.
The pound is falling after UK inflation data paved the way for the Bank of England to cut interest rates in the December meeting.
Data from the Office for National Statistics showed that UK inflation, as measured by the CPI, fell to 3.6% year on year in October, down from 3.8% in September. This was in line with expectations and marked the first cooling in inflation in five months.
Service sector inflation, which the Bank of England watches closely, also cools to 4.5% year on year, down from 4.7% in September, and I’m below expectations of 4.6%.
The data suggests that inflationary pressures are easing, setting the scene for the Bank of England to reduce rates by 25 basis points next month.
The mood remains cautious ahead of the Chancellor’s Budget
The euro is rising following data showing that inflation rose to 2.1% year on year in October, in line with the preliminary reading, from 2.2% in September.
Delving deeper into the figures, service sector inflation was at 3.4% the highest level since April, and up 0.2% from September.
Breaking this down by country, the lowest annual rate was registered in Cyprus at 0.2%, France at 3.8%, and Italy at 1.3%. Meanwhile, the highest rate was recorded in Romania, 8.4%.
However, with inflation close to the ECB’s 2% target, the data support the view that the ECB is done with cutting interest rates. The economy has proved to be resilient to tariff shocks amid low inflation and steady growth.
Eurozone PMI data is due on Friday and will provide more insight into the growth picture in the region.