- Pound (GBP) rose despite PPI inflation cooling
- BoE rate decision is due next week
- Euro (EUR) fell as geopolitical tensions rose
- German IFO business climate beat forecasts
The Pound Euro (GBP/EUR) exchange rate is holding steady after booking gains in the previous session. The pair rose 0.21% on Wednesday settling at €1.1355, after trading in a range between €1.1295 – €1.1367. At 05:45 UTC, GBP/EUR trades +0.02% at €1.1357.
The pound pushed higher in the previous session despite wholesale inflation showing signs of cooling. The producer price index slipped to 12.4% year on year in December, falling from 13% in November and defying expectations of a rise to 13.6%.
Manufacturers unexpectedly reduced their prices by the most since April 2020, news that will be welcomed by the Bank of England ahead of the monetary policy meeting next week. Cooling factory gate level inflation is often considered a lead indicator for falling CPI inflation.
The central bank is widely expected to raise interest rates by 50 basis points amid the ongoing battle to bring double-digit consumer inflation back towards the BoE’s 2% target level.
There is no high-impacting UK economic data due today or Friday, so pound investors are expected to focus on next week and the Bank of England interest rate decision.
The euro fell in the previous session despite upbeat data. The latest German IFO business climate index rise to 90.2 in January, in line with expectations and up from 88.6 in December. The data suggests that business morale brightened 2023 as inflation cools and recession fears ease.
The data comes after stronger German consumer confidence yesterday and an unexpected return to growth in the services PMI.
Still the euro came under pressure amid rising geopolitical tensions after Germany in a joint effort with allies pledged to supply Ukraine with over 100 Leopard 2 battle tanks, a move which isn’t going down well with Moscow.
With no high-impacting eurozone data due to be released today, investors will continue digesting the escalation in geopolitical tensions in addition to rising prospects of another 50 basis point rate cut from the ECB next month.
