- Pound (GBP) rises despite wear business confidence
- UK manufacturing PMI data due
- Euro (EUR) falls as inflation in Germany cools
- Eurozone inflation data is due
The Pound Euro (GBP/EUR) exchange rate is rising modestly, marking the fifth straight day of gains. The pair rose +0.60% in the previous session, settling on Wednesday at €1.1632 and trading in a range between €1.1562 – €1.1648. At 05:35 UTC, GBP/EUR trades +0.05% at €1.1632.
The euro fell in the previous session after inflation data from Germany and France cools by more than expected, raising bets that the ECB could adopt A less hawkish approach to monetary policy.
German inflation cooled to 6.1% year on year in May, down from 7.3% in April and lower than the 6.5% forecast. Meanwhile, inflation in France cooled to 5.1%, down from 5.9% in April and again below the 5.5% forecast. On a monthly basis, both inflation in Germany and in France fell by 0.1%, defying expectations of a monthly rise.
The data comes ahead of eurozone inflation figures which are due today and are expected to show fast inflation cooled to 6.3% year on year in May, down from 7%. However, core inflation is proving to be remarkably sticky. It is expected to cool to just 5.5% from 5.6%. Hotter-than-expected core inflation could fuel hawkish ECB bets.
After 375 basis points of hikes so far, economists forecast two more 25 basis point rate hikes this year.
The pound has managed to push higher despite business confidence dipping in May. The Lloyds Bank business barometer fell to 28% in May, down from 33% in April, marking its first decline since February.
The UK economy has managed to avoid a technical recession, indicating a certain amount of resilience within the economy. However, with inflation still high at 8.7%, the BoE is widely expected to keep raising interest rates to a peak of 5% in the coming quarter. Hawkish BoE expectations could keep the pound supported.
Looking ahead, UK manufacturing PMI data will be in focus. This is the second reading and is expected to confirm a deeper contraction in activity to 46.9 from 47.8.