- Pound (GBP) is falling after three days of gains
- UK – US will hold more trade talks next week
- Euro (EUR) rises but gains will likely be limited
- ECB policymakers see more rate cuts coming
The Pound-Euro (GBP/EUR) exchange rate is falling after three days of gains. The pair rose by 0.28% in the previous session, settling on Wednesday at €1.1957. It traded between €1.1899 and €1.1967. At 09:30, GBP/EUR trades -0.13% at €1.1942.
The pound is falling despite an improving market mood and news that the UK will hold trade talks with the US next week to speed up the implementation of a trade deal between the two sides. On May 8, Prime Minister Kier Starmer and U.S. President Trump agreed to a bilateral trade pact, which left in place Trump’s Liberation Day trade tariffs but removed tariffs on British cars.
Still, a US court blocking Trump’s trade tariffs could mean that Liberation Day tariffs will not occur at all.
Separately and limiting the upside, British business confidence in the service sector hit a 2 1/2 year low in the three months to May as cost pressures ramped up. A confederation of business and industry in its gauge of morale and service sector companies fell to -43% in May, down from -28 % in February, marking its lowest level since November 2022.
Meanwhile, expectations for price increases grew at the fastest pace in two years owing to an increase in Social Security contributions announced in the labour budget and a 7% rise in the minimum wage, both of which came into effect in April.
The euro is edging higher, but gains could be limited by the prospect of further ECB rate cuts in June. Data this week has been soft with an increase in the unemployment change in Germany, adding two reasons for the ECB to be cautious over a stagnant economy.
ECB governing council member Francois Villeroy de Galhau said more rate cuts could be on the way, given few signs of upward pressure on consumer prices.
A 25 basis point rate cut next week will bring the deposit rate down to 2%.
