ExchangeRates.org.uk - At the time of writing, GBP/EUR traded at around €1.1921, up roughly 0.2% from Wednesday’s opening rate. The Pound (GBP) enjoyed some modest success on Wednesday following the release of the UK’s latest inflation data. The index came in above forecasts in June, with headline inflation printing at 2% rather than an expected 1.9%, meanwhile core inflation remained unchanged at 3.5% rather than falling to 3.4%. As services inflation remained at 5.7%, this provided the Pound with additional support on Wednesday as it served to undermine August Bank of England (BoE) intrest rate cut bets.
Anna Leach, Chief Economist at the Institute of Directors, commented: ‘The bank will be relieved that headline inflation has remained at target in June in line with their expectations. That relief will be tempered though by services inflation holding at 5.7%, well above their expectations. Stickiness in services inflation – a key measure of domestic inflationary pressures – lowers the likelihood of an August rate reduction. All eyes will be on tomorrow’s wage data to see whether it will spur a summer rate cut by the MPC.’
Euro (EUR) flat ahead of ECB Intrest Rate Decision
The Euro (EUR) struggled to garner intrest attention on Wednesday as EUR investors remained reluctant to place any overly aggressive bets ahead of the European Central Bank (ECB)’s upcoming intrest rate decision. With the ECB widely expected to pause its unwinding cycle on Thursday, markets will look to the central bank’s forward guidance surrounding the future of monetary policy.
Shaan Raithatha, Senior Economist at Vanguard Europe, said: ‘The European Central Bank (ECB) is widely expected to remain on hold on Thursday and this meeting is unlikely to bring in major news. That said, there will be updated language on how the outlook for activity and inflation has evolved since June. Our judgement is that, if anything, a September cut is slightly more likely than six weeks ago.’
Should ECB officials provide a dovish consensus, September rate cut bets could rise and undermine the common currency.
GBP/EUR Forecast: ECB Intrest Rate Decision in the Spotlight
Looking ahead, the primary catalyst of movement for the Pound Euro exchange rate this week will likely be the ECB’s upcoming intrest rate decision, which could infuse significant volatility into EUR exchange rates should the central bank deliver any dovish forward guidance. Turning to the Pound, Thursday will see the release of the UK’s latest labour data. UK unemployment is forecast to remain near a three-year high of 4.4% in May, meanwhile average earnings (excluding bonuses) are forecast to drop from 6% to 5.7%, which could undermine the Pound should the data confirm weakness in the UK labour market. At the end of the week, the UK’s latest retail sales data is forecast to report a drop of 0.4% which could further undermine GBP exchange rates on Friday.
This content was originally published on ExchangeRates.org.uk
