- Pound (GBP) rises for a second day
- The BoE is likely near the end of its hiking cycle
- Euro (EUR) falls after weak German consumer confidence
- German inflation data is due
The Pound Euro (GBP/EUR) exchange rate is holding steady after gains in the previous session. The pair rose +0.48% in the previous session, settling on Wednesday at €1.1552 and trading in a range between €1.1547 – €1.1559. At 06:35 UTC, GBP/EUR trades +0.02% at €1.1556
The euro fell sharply in the previous session after the GfK consumer confidence indicator for Germany fell to its lowest level since April. The gauge for consumer sentiment fell to a worse-than-expected -26.5, with lower income expectations and still high inflation hurting consumers’ outlook. GfK said that they believe it’s unlikely that German consumer sentiment will recover this year as a result, private consumption is unlikely to make a positive contribution to economic growth.
Attention is now firmly on a busy economic calendar ahead, with the ECB’s economic bulletin, eurozone consumer confidence, and German inflation figures all set to be released.
German inflation data is expected to show that inflation cooled to 4.6% year on year in September, down from 6.1% in August.
The data comes as the market is increasingly expecting the ECB to leave interest rates at the record 4% level, bringing an end to the monetary tightening cycle. However, what is unclear is how long the ECB intends to keep interest rates elevated for.
Should German inflation and eurozone inflation dated tomorrow show that consumer prices are cooling faster than expected, then the market could start pricing in a cut in interest rates sooner in 2024.
While the pound managed to rise against the euro, it fell sharply against the US dollar as the outlook for the UK economy remains gloomy. Investors are increasingly convinced that the Bank of England has reached the end of its hiking cycle with the market and now expect an interest rate cut by the middle of next year.
Recent data has been adding to evidence that the UK economy is facing a considerable slowdown in growth most recently, the PMIs showed a steep contraction in service sector activity. A combination of a weak economic outlook and a dovish stance from the Bank of England could keep the pound under pressure.