Sterling has recently held on steady against the EUR and as no economic data releases today that should have an impact on the GBP/EUR rate, eyes are now on tomorrow’s core inflation and inflation levels being released in Europe. Recent trajectories suggest that inflation levels will increase for May. From an economic standpoint this scenario is never a promising sign for a central bank – seeing economic growth slowing down and seeing a turn of increasing price levels.
ECB have indicated that there is a requirement to lower borrowing levels in June to tackle their issue with low economic development. Ahead of tomorrow’s release, markets are anticipated if figures would come out much higher or lower than expected – can cause high volatility on the market. If inflation spike well above the 2.2% mark – could this change the view from ECB that a rate hike would trigger further injection to inflation levels and hold off? This would lead to EUR strength short-term. While the more expected outcome is that inflation levels are released within the forecasted range and can lead to additional GBP strength – cementing that ECB are forced to lower their interest levels in June.
Once again, we have seen USD bounce back, with DXY (USD-index) reaching 105 this morning. Recent sell off on the equity market has led to additional USD strength, seeing the GBP/USD dropping from 1.28 on Tuesday and experimenting to break the 1.27 level but resistance levels kicked in and we are currently at 1.2710. With GDP figures being released later today for the US followed by core PCE ( personal consumption expenditure) tomorrow, there is risk for more fluctuations for the currency pair.
