- Pound (GBP) is unchanged on Tuesday after recent weakness
- Chancellor Reeves warns of the inflationary impact of the Iran war
- Euro (EUR) is unchanged on Tuesday
- German ZEW economic sentiment drops to -0.5 from 58.3
The Pound-Euro (GBP/EUR) exchange rate is unchanged after three days of losses. The pair fell -0.06% in the previous session, settling on Monday at €1.1578. The pair traded between €1.1559 and €1.1602. At 14:30 UTC on Tuesday, GBP/EUR trades unchanged at €1.1578.
The pound is unchanged on Tuesday as investors continue to weigh the impact of the Middle East conflict on UK finances ahead of this week’s Bank of England rate decision.
Chancellor Rachel Reeves warned that the conflict is likely to put upward pressure on UK inflation in the coming months. Her comments came during a speech in the City of London and follow growing attention ahead of Thursday’s Bank of England decision.
The central bank is widely expected to leave interest rates unchanged at 3.75%. Markets had previously expected a 25-basis-point cut, but this has now been largely priced out following the outbreak of the Iran conflict and the surge in energy prices.
Oil remains around $100 a barrel, up roughly 40% since the conflict began, and is expected to feed into higher inflation at a time when UK growth has stalled.
Attention will focus on the Bank of England’s outlook, with markets now considering the possibility that rates could rise to 4% by year-end.
The euro is little changed despite a sharp deterioration in German investor sentiment in March. The German ZEW economic sentiment index fell to -0.5, down from 58.3 and well below expectations of 30.
The drop reflects rising concerns over higher energy prices amid the escalation of the Middle East conflict, which is expected to lift inflation while weighing on economic growth.
The extent of these impacts will depend on the duration of the conflict, but with few signs of de-escalation, markets are becoming increasingly sceptical of a quick resolution.
Looking ahead, the ECB is expected to leave interest rates unchanged at 2%, while likely emphasising the need for patience as it assesses the impact of the conflict on the eurozone economy.
