• Pound (GBP) extends gains from last week
  • Hawkish BoE bets support the pound
  • Euro (EUR) slips despite ECB rate hike & more expected
  • Eurozone inflation cooled by more than expected

The Pound Euro (GBP/EUR) exchange rate is rising at the start of the week, adding to gains from the previous week. The pair rose +0.21% across last week, settling on Friday at €1.1715 and trading in a range between €1.1609 – €1.1737. At 07:35 UTC, GBP/EUR trades +0.07% at €1.1721.

The pound is rising, extending gains from the past four weeks as investors look ahead to UK inflation data and the Bank of England interest rate decision later this week which will shape the outlook for the pound.

The two events on Wednesday and Thursday of this week could either halt the upward momentum in the pound or give the rally fresh legs.

After a string of strong data last week, the markets are pricing in a peak interest rate of 5.75% by the Bank of England. However, investment banks, along with many economists, believe it’s unlikely that the Bank of England will be able to deliver hikes to this extent. The market is pricing in five more 25-basis point rate hikes, which some analysts say is very unlikely.

UK inflation data is out before the interest rate decision and is expected to cool to its lowest right in 14 months owing to a sharp drop in electricity and natural gas prices as well as slower growth in the cost of food.

The Bank of England’s near-term messaging is likely to depend on the inflation print.

The euro showed resilience in the previous week after the European Central Bank raised interest rates by 25 basis points as expected but also made it clear that there was still work to be done to tame interest rates back to the target 2% level.

Eurozone inflation data confirmed that consumer prices eased to 6.1% YoY in May, down from 7%.

Today the economic calendar is quiet. The key economic release for the euro is likely to be the eurozone PMI data at the end of the week.