gbp-british-pound-coin - GBP
  • Pound (GBP) falls after the BoE rate hike
  • UK retail sales are due to fall
  • Euro (EUR) rises despite diverging ECB views
  • Eurozone consumer confidence is due later

The Pound Euro (GBP/EUR) exchange rate is falling after small gains in the previous session. The pair rose 0.11% in the previous session, settling on Thursday at €1.1631 and trading in a range between €1.1579 – €1.1622. At 07:35 UTC, GBP/EUR trades -0.06% at €1.1629.

The pound advanced on Thursday after the Bank of England raised interest rates by a larger-than-expected 50 basis points, taking the right to 5%. This was a surprise made with the market pricing in a 40% probability of such a large hike at a 60% probability of a 25 basis point hike.

The move comes after inflation data proved to be stickier than expected, with core inflation rising to 7.1%, its highest level since 1992, as the economy has proved to be stronger than expected and as wages growth smashed expectations.

The central bank voted 7-2 for a jumbo hike as it ramps up its fight against inflation amid fears that a wage-price spiral could be strengthening.

Usually, the pound would rise after a larger-than-expected rate hike. However, the fact that the pound is falling is a reflection of the rising recession fear. Should interest rates rise to 6% this would be sufficiently high to tip the UK into a recession.

Looking ahead, attention will now shift to UK retail sales, which are expected to fall to -0.2% month on month in May, after rising 0.5% in April.

The euro is rising and is set to rise across the week after benefitting from a weaker pound. This week has been a quiet week for Eurozone economic data.

However, that will change today with the release of PMI data for June. The data is expected to show that business activity expanded at a slightly slower pace in June. The composite PMI is expected to cool to 52.5, down from 52.8 in May. Breaking this down further, manufacturing is set to remain at 44.8 and service sector activity to cool to 54.5 to 55.1. The level 50 separates expansion from contraction.