- Pound (GBP) is rising after losses last week
- The market still expects 60 bps of rate hikes from the BoE this year
- Euro (EUR) is falling as the ECB is expected to hike less than the BoE
- Eurozone PMI data is due tomorrow
The Pound-Euro (GBP/EUR) exchange rate is rising after losses last week. The pair fell -0.47% in the previous week, settling on Friday at €1.1530. The pair traded between €1.1521 and €1.1614. At 14:30 UTC on Monday, GBP/EUR trades +0.32% at €1.1567.
The pound is rising as risk sentiment rebounds sharply following President Trump’s announcement that the US would postpone strikes on Iranian power plants for five days.
Trump’s change of tone came after he also hailed “productive” talks with Iran over the weekend, although Iran has denied that such talks took place.
Ten-year gilt yields are falling, down around 7 basis points at the time of writing, after previously rising to their highest level since 2008 earlier in the session, as markets had priced in up to 125 basis points of rate hikes from the Bank of England this year.
Markets have since scaled this back and are now pricing in around 60 basis points of hikes from the BoE in 2026. This still marks a significant shift from the two rate cuts that were expected before the conflict began.
The pound’s strength against the euro reflects expectations that the Bank of England will tighten policy more than the European Central Bank.
Oil prices have fallen around 8%, easing pressure on the UK economy.
Looking ahead, UK inflation data and retail sales will be in focus, alongside any further headlines from Trump.
The euro is rising against the US dollar but falling against sterling, reflecting expectations that the ECB will hike rates less than the BoE this year.
Prior to Trump’s de-escalation comments, markets had been pricing in up to three ECB rate hikes this year amid expected stagflationary conditions from surging oil prices.
With oil prices falling today after Trump’s comments, inflationary worries are also easing.
Attention turns to Eurozone PMI data due tomorrow for a timely insight into the early impact of the Iran war and rising energy prices on eurozone economic activity.