- Pound (GBP) falls, extending losses from yesterday
- PM Starmer keeps the support of his cabinet
- Euro (EUR) rises amid a quiet calendar
- ECB President Lagarde sees inflation returning to 2%
The Pound-Euro (GBP/EUR) exchange rate is falling for a third day. The pair fell 0.12% in the previous session, settling on Monday at €1.1494. It traded between €1.1437 and €1.1520. At 14:30 UTC on Tuesday, GBP/EUR trades -0.16% lower at €1.1472.
The pound is falling against both the euro and the US dollar as investors continue to monitor developments in UK politics and the Bank of England’s rate outlook.
UK government bond yields continued to fall from yesterday’s peak as Prime Minister Kier Starmer appeared to be on a more stable footing.
Amid support from his cabinet and after a bruising day yesterday, Starmer pledged never to walk away from his job. He brushed off a challenge to his authority by a Labour leader in Scotland and other party members who had called on him to quit amid the fallout from Peter Mandelson’s appointment as U.S. ambassador despite having close ties to Jeffrey Epstein.
While Prime Minister Starmer is set to hold on to his job at least for now, attention is also on the Bank of England following last week’s more dovish-than-expected meeting, which supports the view that the central bank may cut interest rates, potentially as soon as March. The central bank said it expects UK inflation to fall back towards the 2% target level by April.
The euro drifted higher despite a quiet economic calendar. Yesterday, the euro benefited from a sharp improvement in investor sentiment in the region. The data suggests that the economy was turning a corner.
Meanwhile, ECB president Christine Lagarde also spoke and confirmed that she expected eurozone inflation to stabilise at the central bank’s 2% target after dipping below it this year. Inflation cooled to 1.7% year-on-year in January.
Lagarde also reconfirmed the central banks’ meeting-by-meeting approach to monetary policy. The ECB left rates unchanged in February at 2% forf a fifth meeting.