- Pound (GBP) is modestly lower for a fifth day
- The BoE is expected to leave rates unchanged tomorrow
- Euro (EUR) is edging higher as inflation rises
- The ECB is expected to leave rates unchanged at 2% tomorrow
The Pound-Euro (GBP/EUR) exchange rate is inching lower for a fifth consecutive day. The pair fell -0.03% in the previous session, settling on Tuesday at €1.1574. The pair traded between €1.1565 and €1.1587. At 10:30 UTC on Wednesday, GBP/EUR trades -0.02% at €1.1572.
The pound is once again edging marginally lower amid a quiet economic calendar, as attention turns firmly to the Bank of England’s interest rate decision tomorrow.
At 12:00 GMT, the Bank of England is expected to leave interest rates unchanged at 3.75%, with previous expectations for a 25-basis-point rate cut having been priced out due to rising inflation concerns.
With oil prices still hovering around $100 a barrel, the UK faces a potential stagflationary environment, with sticky inflation and weak growth. It is also worth noting that UK GDP had already stalled at 0% month-on-month in January, even before the Iran conflict began.
The pound appears vulnerable given the weak economic backdrop, strained public finances, and rising political risks.
Markets now believe the MPC has finished cutting rates and are beginning to price in the possibility of a rate hike by year-end.
A cautious tone from the Bank of England could weigh on sterling and push it lower.
The euro is only marginally higher after data from Eurostat confirmed that eurozone inflation rose to 1.9% year-on-year in February, in line with preliminary estimates and up from 1.7% in January.
However, the data is already considered somewhat outdated, as it does not reflect the recent rise in energy prices seen since early March.
The ECB is expected to leave interest rates unchanged at its meeting tomorrow, with inflation still close to the 2% target.
Policymakers are likely to emphasise a data-dependent approach and their readiness to act if inflationary pressures increase due to the Iran conflict. However, they are also expected to stress that there is no urgency to tighten policy, which could keep the euro steady.