- Pound (GBP) holds steady at a 5-month high
- UK grocery inflation eases to 4% from 4.3%
- Euro (EUR) struggles against the pound
- French inflation eases to 0.4% YoY from 0.7% in December
The Pound-Euro (GBP/EUR) exchange rate is unchanged after strong gains yesterday. The pair rose 0.33% in the previous session, settling on Monday at €1.1591. It traded between €1.1525 and €1.1595. At 16:30 UTC on Tuesday, GBP/EUR trades -0.02% higher at €1.1588.
The pound is broadly unchanged but continues to trade around a five-month high, even as data showed that UK grocery inflation cooled in the four weeks to January 25.
According to Worldpanel data, UK grocery inflation cooled to 4%, the lowest level since April last year. This was down from 4.3% in the previous report and points to cooling price pressures ahead of UK official inflation data on February 18th and the Bank of England rate decision on Thursday.
Policymakers closely monitor food prices, as they believe they play a key role in shaping inflation expectations.
Inflation ticked higher 3.4% year on year in December, the highest among the G7 economies.
The Bank of England is expected to leave interest rates unchanged on Thursday at 3.75% after cutting rates by 25 basis points in the December meeting. The market isn’t pricing in another 25-basis-point rate reduction from the BoE until April.
The euro is broadly unchanged as investors await eurozone inflation data tomorrow and the ECB rate decision on Thursday.
Ahead of tomorrow’s CPI report, inflation data from France was cooler than expected at 0.4% year on year in January, down from 0.7% in December and below the 0.6% forecast.
Eurozone inflation in December was 1.9% year on year, just slightly below the ECB’s 2% target. The central bank is not expected to cut interest rates this year.
However, some ECB policymakers have raised concerns over the strength of the euro, which had briefly spiked above 1.20 in January. A stronger euro adds deflationary pressures to the economy.
