- Pound (GBP) falls, extending last week’s losses
- The 1st rare cut is fully priced in for August
- Euro (EUR) rises modestly ahead of ECB President Lagarde’s speech
- Eurozone consumer confidence data is also due
The Pound Euro (GBP/EUR) exchange rate is falling at the start of the week, extending losses from the previous week. The pair fell -0.73% in the previous week, settling on Friday at €1.1612 and trading in a range between €1.1604 and €1.1739. At 10:00 UTC, GBP/EUR trades -0.16% at €1.1593.
The pound is falling across the board as the market is becoming increasingly convinced that the Bank of England will cut interest rates sooner rather than later.
The markets are now fully pricing in a 25 basis point rate cut in August, with two 25 basis point rate cuts priced in for 2024
The repricing of rate expectations comes after dovish commentary from Bank of England policymakers last week and after UK inflation cooled less than expected to 3.2%.
Bank of England governor Andrew Bailey assured that the central bank sees inflation cooling in line with a trajectory to cut right.
Meanwhile, Bank of England deputy governor Dave Ramsden said on Friday that he considered the risks of UK inflation remaining too high had receded, and the inflation could indeed prove to be weaker than the Bank of England’s most recent forecast.
Ramsden, who had voted to keep interest rates on hold in the previous meeting, said inflation could steady around the Bank of England’s 2% target over the coming three years rather than increase later this year as the central bank forecast. His comments helped investors reassess the likelihood of a rate cut this summer.
Meanwhile, the euro is inching higher against the pound but struggling against the US dollar amid expectations that the European Central Bank will also start cutting interest rates in the coming months.
ECB president Christine Lagarde is due to speak today, and her comments will be watched closely for signals that the central bank is set to start listening to monetary policy in June.
Meanwhile, eurozone consumer confidence data for April is also due to be released and is expected to confirm a slight improvement in morale to -14, up from -14.9. The improvement in morale comes as inflation cools towards the ECB’s 2% target and amid signs that the eurozone economy is showing signs of recovery.
