- Pound (GBP) is falling after 3-days of gains
- BoE left rates unchanged at 4.75%
- Euro (EUR) rises despite the ECB guiding to further cuts
- German PPI data is due tomorrow
The Pound Euro (GBP/EUR) exchange rate is falling after three days of gains. The pair rose 0.26% in the previous session, settling on Wednesday at €1.2144. It traded in a range between €1.2079 and €1.2155. At 22:00 UTC, GBP/EUR trades -0.09% at €1.2053
The pound is falling after the Bank of England left interest rates unchanged at 4.75%, in line with economists’ expectations. However, the vote split was more dovish than expected, raising expectations of another rate cut at the next meeting in February.
Six policymakers voted to leave rates unchanged, while three voted to cut rates by 25 basis points. This was more dovish than the 8-1 vote that was expected.
While policymakers expressed concerns that recent wage growth could add to inflationary pressures, the central bank also forecast 0% growth in Q4, a downgrade from 0.3% previously, adding to the economic challenges and raising worries of stagflation.
The BoE highlighted the Labour Budget as a point of uncertainty around how the economy could respond to the higher employment cost. The market expects the BoE to cut rates by 50 basis points next year, unchanged from before the meeting.
The euro is rising, outperforming the pound, despite the European Central Bank’s guidance towards further monetary policy easing in 2025.
ECB policymakers support more rate cuts in 2025 as eurozone inflation is broadly under control at 2.2% and as risks to economic growth have risen due to concerns over trade tariffs from the incoming president-elect Trump.
Looking ahead, German wholesale inflation data will be released tomorrow. The German producer price index (PPI) is expected to rise by 0.3% MoM, up from 0.2% in October. On an annual basis, PPI is expected to fall -0.3%, up from -1.1% in November. Hotter-than-expected inflation could lift EUR further.
