- Pound (GBP) is flat after losses yesterday
- UK CPI held at 3% YoY
- Euro (EUR) is unchanged despite oil prices falling
- German economic sentiment deteriorates sharply
The Pound-Euro (GBP/EUR) exchange rate is unchanged after losses yesterday. The pair fell -0.09% in the previous session, settling on Tuesday at €1.1554. The pair traded between €1.1547 and €1.1579. At 14:30 UTC on Tuesday, GBP/EUR trades 0% at €1.1554.
The pound is unchanged after UK inflation held steady at 3.0% year-on-year in February, unchanged from January.
Lower petrol prices in February helped offset rising clothing costs. However, with fuel prices rising sharply since the start of the Iran conflict, this disinflationary effect is unlikely to persist.
Core CPI, which excludes more volatile items such as food and fuel, unexpectedly rose to 3.2%, while services inflation was also stickier than expected at 4.3% versus the 4.2% forecast.
However, the data has had little impact on sterling, as it is already somewhat outdated.
At last week’s Bank of England meeting, the central bank raised its inflation forecasts, expecting inflation to rise to 3.5% by mid-year.
Markets are pricing in around two full-rate hikes by year-end, down from four hikes expected just a few days ago.
The market currently assigns a 70% probability to a 25-basis-point rate hike in April, although economists see this as less likely given growth headwinds from higher energy costs.
Falling oil prices have helped push gilt yields lower.
The euro is steady against sterling but falling against the US dollar, after weak data and despite falling oil prices on optimism around a potential diplomatic solution to the Iran conflict.
Brent crude has fallen to around $95 a barrel as the US signals it is pursuing a diplomatic path towards a ceasefire.
On the data front, Germany’s Ifo business sentiment index weakened, highlighting deteriorating confidence.
The headline reading came in at 86.4, down from 88.4 in February. While the current assessment component was unchanged, expectations fell sharply — the biggest drop since the Russian invasion of Ukraine — declining to 86.0 from 90.2.