- Pound (GBP) rises after gains last week
- BoE likely to cut rates later than ECB
- Euro (EUR) falls with ECB rate decision on Thursday
- ECB President Christine Lagarde to speak
The Pound Euro (GBP/EUR) exchange rate is rising after gains in last week. The pair rose +0.09% in the previous week, settling on Friday at €1.1652 and trading in a range between €1.1598 – €1.1693. At 07:00 UTC, GBP/EUR trades +0.06% at €1.1658.
The pound is heading higher at the start of the week after booking gains again in the previous week, which marked the third straight week of gains.
The pound pushed higher amid expectations that the Bank of England will keep interest rates high for longer and will cut rates after the ECB and the Federal Reserve.
Last week’s data shows that UK inflation unexpectedly rose to 4%, up from 3.9%, highlighting the sticky nature of inflation.
Meanwhile, retail sales slumped by more than expected, dropping 3.2%, highlighting the struggles that consumers face amid high-interest rates and still high inflation. Many shoppers spent heavily in November, taking advantage of the Black Friday and Cyber Monday sales, and spending dropped in December.
While there is no high impacting UK economic data today, attention will be on PMI figures tomorrow. The services sector PMI has been stronger in recent months while the manufacturing remains in contraction. Investors will be watching to see whether this trend continues.
The Bank of England is watching service sector inflation closely, so strong service sector growth could boost the pound.
The euro is heading lower, extending losses from the previous few weeks, despite the ECB continuing to push back on expectations of an earlier rate cut.
Last week, the minutes of the ECB meeting in December showed that policymakers made no mention of cutting interest rates but did suggest that there were concerns over their outlook for the economy.
This week, the main focus will be on the ECB’s rate decision on Thursday where the central bank is widely expected to leave interest rates on hold. Instead, the focus will be very much on ECB policymaker Christine Lagarde and her comments in the press conference.
ECB president Christine Lagarde is due to speak today, and she is unlikely to deviate from her comments last week, where she said that inflation was cooling but the central bank still had more work to do.