- Pound (GBP) is rising after losses yesterday
- UK inflation eased to 3% YoY from 3.4% in December
- Euro (EUR) is falling despite German inflation rising
- German inflation rose to 2.1% YoY from 1.8%
The Pound-Euro (GBP/EUR) exchange rate is rising on Wednesday after losses yesterday. The pair fell -0.49% yesterday, settling on Tuesday at €1.1446. It traded between €1.1429 and €1.1513. At 17:30 UTC on Wednesday, GBP/EUR trades 0.11% higher at €1.1458.
The pound is rising despite UK inflation falling to its lowest level since March last year, paving the way for further interest rate cuts by the Bank of England soon.
UK inflation, as measured by the consumer price index, cooled to 3% year on year in January, down sharply from 3.4% in December, as transport, food, and non-alcoholic drink prices increased at a slower pace.
The fall in inflation was in line with expectations but remains the highest among the Group of Seven nations. Still, the Bank of England projects inflation will cool close to its 2% target in April.
Digging deeper into the figures, food inflation, which the Bank of England monitors to shape public expectations about prices, was the lowest it’s been since April last year.
Meanwhile, core inflation, which excludes more volatile items such as food and fuel, rose by 3.1% in January, its coolest levels since 2021.
The data support the view that the Bank of England will cut interest rates again in the spring. The market is pricing in an almost 90% chance of a cut by the BoE in March up from around 80% before the data. This is expected to be followed by another in late 2026.
The euro was under pressure on Wednesday after data showed that German inflation rose 2.1% year on year in January, up from 1.8% in December, in line with preliminary estimates.
This latest inflation reading was just slightly above the ECB’s 2% target midpoint, driven mainly by higher costs for consumer goods and food, and by a rebound in durable-goods prices.
In contrast, service-sector inflation cooled to 3.2% from 3.5% in December, but it remains above the historical average.
Core inflation, which excludes food and energy, also ticked higher to 2.5%, up from 2.4%.
The data is not expected to influence ECB monetary policy, with the central bank expected to leave rates unchanged for the rest of this year.
