- Pound (GBP) rises on hawkish BoE comments
- More rate hikes could be needed
- Euro (EUR) falls ahead of the ECB rate decision this week
- ZEW economic sentiment data is due tomorrow
The Pound Euro (GBP/EUR) exchange rate is rising, extending gains from last week. The pair rose +0.59% in the previous week, settling on Friday at €1.1691 and trading in a range between €1.1580 – €1.1710. At 08:35 UTC, GBP/EUR trades +0.02% at €1.1693.
The pound is pushing higher amid rising expectations for further Bank of England rate hikes. Bank of England’s Jonathan Haskel warned on Monday that the central bank may need to raise interest rates above the current 4.5% level in order to rein in inflation.
Economists broadly expect the Bank of England to raise its leading interest rate to 4.75% next week but the financial markets see interest rates pushing as high as 5.5% by the end of the year. This would imply another 425 basis point rate hikes.
Expectations remain hawkish as inflation in the UK is proving to be sticky at 8.7%. While the Bank of England is expecting inflation to fall across the second part of the year the OECD forecast that inflation will be 6.9% at the end of the year still almost 3.5 times the Bank of England’s target level.
Looking ahead there is no high impacting UK economic data due to be released today. Investors will be watching for UK labour market data due tomorrow.
The euro continues to struggle Ahead of the ECB meeting later this week. While the central bank is expected to raise interest rates by 25 basis points this has been priced in.
The fact that inflation cooled faster than expected in may has raised questions over future interest rates. While another 25 basis point hike in July is also expected hikes beyond then are looking doubtful.
There is no high-impacting eurozone economic data today. Investors will look ahead to tomorrow’s Germans ZEW economic sentiment reading.