- Pound (GBP) is falling after gains yesterday
- British grocery inflation fell to 3.8%
- Euro (EUR) is rising ahead of this week’s ECB decision
- ECB is expected to leave rates unchanged
The Pound-Euro (GBP/EUR) exchange rate is falling after gains yesterday. The pair rose 0.03% in the previous session, settling on Monday at €1.1548. The pair traded between €1.1525 and €1.1568. At 15:00 UTC on Tuesday GBP/EUR trades -0.10% at €1.1536.
The pound is falling on Tuesday amid a broader risk-off move across financial markets and surging oil prices, underpinned by stagflation concerns.
According to data from Worldpanel, British grocery inflation was 3.8% in the four weeks to April 19, down from 4.3% in the previous period, suggesting that inflation from the war with Iran has so far not fed through to supermarket prices.
UK grocery sales rose 0.9% over the four-week period, with shoppers increasingly looking for deals as consumers already feel the squeeze from higher prices at the petrol pumps.
Prices were rising fastest in categories such as medicines and treatments, as well as fresh and processed meat and fish.
However, this is not expected to last long, with expectations that food prices could rise by almost 10% by December.
Separate data from the British Retail Consortium showed that shop price inflation decreased by 1% in April, helped by Easter discounts.
The data comes ahead of the Bank of England rate decision on Thursday, when the central bank is expected to leave interest rates unchanged at 3.75%.
The euro is edging higher as attention turns to the European Central Bank rate decision later this week, where rates are also expected to remain unchanged at 2.15%. However, with inflation rising and growth slowing, the ECB faces a dilemma over how to respond to stagflation risks.
Markets expect the ECB could hike rates twice this year, with the first increase potentially coming as soon as June.
