- Pound (GBP) is falling after gains yesterday
- BoE Andrew Bailey noted progress on inflation
- Euro (EUR) rises despite weak German data
- German IFO business climate fell to 85.4
The Pound Euro (GBP/EUR) exchange rate is edging lower after strong gains yesterday. The pair rose 0.64% in the previous session, settling on Monday at €1.2009 and trading in a range between €1.1918 and €1.2017. At 17:00 GBP/EUR trades -0.02% at €1.2008.
The pound is edging lower after dovish comments from BoE Governor Bailey. Andrew Bailey said that he expected inflation to cool further saying that it has already come down a long way. However, the central bank clearly remains wary after leaving interest rates on hold in the September meeting after cutting rates in August. Inflation is down at 2.2% after peaking at 11.1% nearly two years ago.
However, he also noted that inflation needs to be sustainably at target, which is proving challenging given the mix of inflation components at the moment. The central bank remains concerned over high service prices and regular wages, both of which are increasing at an annual pace of over 5%.
Bank of England governor Andrew Bailey also said that while he is optimistic that rates will fall, further cuts would need to be gradual in order not to cut too fast or too much. Bailey also said that he did not expect rates to return to the historic lows close to 0 seen four years ago and that the neutral rate would indeed be a little bit higher, although he failed to specify.
The euro is holding steady despite the weak German IFO business climate index. The closely watched index showed that business conditions decreased to 85.4 in September, down from 86.6 in August. The survey of around 9000 company managers also assesses the current situation as deteriorating.
The data, which comes after yesterday’s weak PMI figures, point to the German economy’s downward spiral and raise the risk of recession in the eurozone’s largest economy.
