- EUR/GBP gains strength around 0.8275 in the early European session on Wednesday, adding 0.27% on the day.
- UK annual CPI rose 2.6% in November versus 2.6% expected.
- ECB President Christine Lagarde hinted at possible rate cuts as inflation risks ease.
The EUR/GBP cross remains in positive territory near 0.8275, breaking the two-day losing streak during the early European session on Wednesday. The British Pound (GBP) weakens following the UK’s November Consumer Price Index (CPI) inflation data. Later on Wednesday, traders will be watching the Eurozone Harmonized Index of Consumer Prices (HICP) report.
Data released by the Office for National Statistics (ONS) on Wednesday showed that the UK CPI rose 2.6% year-on-year in November, compared to 2.3% growth seen in October. The reading was in line with the market consensus of 2.6% and remained well above the Bank of England’s (BoE) target of 2.0%.
Meanwhile, the core CPI, which excludes volatile food and energy items, rose 3.5% year-on-year in November versus a 3.3% rise in October, missing the 3.6% estimate. On a monthly basis, UK CPI inflation eased to 0.1% in November from 0.6% in October. Markets expected a result of 0.1% in the reported month. The UK inflation report failed to boost GBP and acts as a tailwind for EUR/GBP.
The European Central Bank (ECB) cut its key rates last week for the fourth time this year and signaled further rate cuts as inflation risks ease. During the press conference, ECB President Christine Lagarde said: “The direction of travel is clear, and we hope to reduce interest rates further.” Dovish comments from ECB officials could weigh on the Euro (EUR) against the GBP. In addition, concerns about the weak economy and uncertainty over possible tariffs in the US could contribute to the decline of the shared currency.
British Pound FAQs
The British Pound (GBP) is the oldest currency in the world (AD 886) and the official currency of the United Kingdom. It is the fourth most traded foreign exchange (FX) unit in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/ USD, which represents 11% of FX, GBP/JPY (3%) and EUR/GBP (2%). The British Pound is issued by the Bank of England (BoE).
The most important factor influencing the value of the Pound Sterling is the monetary policy decided by the Bank of England. The Bank of England bases its decisions on whether it has achieved its main objective of “price stability” – a constant inflation rate of around 2%. Its main tool to achieve this is the adjustment of interest rates. When inflation is too high, the Bank of England will try to control it by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for sterling, as higher interest rates make the UK a more attractive place for global investors to invest their money. When inflation falls too much it is a sign that economic growth is slowing. In this scenario, the Bank of England will consider lowering interest rates to make credit cheaper, so that companies will take on more debt to invest in projects that generate growth.
The data released measures the health of the economy and may affect the value of the pound. Indicators such as GDP, manufacturing and services PMIs and employment can influence the direction of the Pound.
Another important piece of information that is published and affects the British Pound is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a given period. If a country produces highly in-demand export products, its currency will benefit exclusively from the additional demand created by foreign buyers seeking to purchase those goods. Therefore, a positive net trade balance strengthens a currency and vice versa in the case of a negative balance.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
