- Pound (GBP) is rising after two days of losses
- UK CPI rises to 3.4% YoY
- Euro (EUR) falls as Trump speaks at Davos
- ECB President Christine Lagarde speaks
The Pound-Euro (GBP/EUR) exchange rate is rising after two days of losses. The pair fell 0.61% in the previous session, settling on Tuesday at €1.1560. It traded between €1.1452 and €1.1536. At 14:30 UTC on Wednesday, GBP/EUR trades +0.09% lower at €1.1474.
The pound is inching higher after recent losses as investors digest hotter-than-expected UK inflation data. Inflation, as measured by the consumer price index, rose 3.4% year on year in December, up from 3.2% in November and ahead of forecasts of 3.3%. Meanwhile, core inflation, which strips are more volatile items such as food and fuel, remained unchanged at 3.2%
Delving deeper into the figures, one-offs such as tobacco duty and airfares drove the rise in inflation. Meanwhile, service sector inflation, which is closely watched by the Bank of England policy makers, was cooler than expected at 4.5%.
Following the data, the market has left Bank of England rate cut expectations unchanged, pricing in a 25 basis point rate reduction and a 70% probability of a second rate cut by the end of the year.
The euro is inching lower as investors remain focused on Trump’s speech at Davos and developments over Greenland.
The EUR had risen in recent sessions, benefiting from U.S. dollar weakness, even as President Trump threatened 10% tariffs on 8 European countries.
However, Trump still pushed for Greenland but struck a slightly more consilitary tone in his speech, easing some immediate concerns.
The EU is on the brink of a possible trade war with the US after Trump threatened tariffs, and is considering its response.
There are reports circulating that the EU could suspend approval of the US-EU trade deal agreed last summer as part of its retaliation.
Trump said he wants negotiations on Greenland to start immediately.
ECB President Christine Lagarde is due to speak at Davos shortly.