- EUR/GBP falls as the unveiling of UK inflation figures surpassing expectations hints at the potential for sustained high interest rates in the UK.
- A TD Securities analyst remarks, “This is not the outcome the BoE desires.” Meanwhile, Eurozone inflation data meets forecasts, bolstering the Euro amidst prevailing dovish market sentiments.
On Wednesday, the EUR/GBP experiences a slight downturn, hovering around the 0.8540 level, following the release of economic indicators from both the UK and Eurozone.
In the UK, March’s inflation figures, reported by the Office for National Statistics (ONS), slightly exceeded expectations. The Consumer Price Index (CPI) rose by 3.2% year-on-year, surpassing the anticipated 3.1%, albeit lower than the previous month’s 3.6%. Similarly, Core CPI and Retail Price Index (RPI) edged higher but remained below previous levels. However, Producer Price Index results were either as expected or slightly below. The Pound Sterling gains ground in response, as the data diminishes the likelihood of Bank of England (BoE) interest rate cuts. Analysts at TD Securities note that this outcome, coupled with stronger-than-expected wage figures from the previous day, suggests the BoE may need to prolong higher interest rates to address persistent inflation. The anticipation of higher interest rates often attracts foreign capital, bolstering the currency.
Following the release of the final estimate for March’s Eurozone Harmonized Index of Consumer Prices (HICP), the EUR/GBP sees a modest recovery. The data remains unchanged from the initial reading, with a year-on-year HICP increase of 2.4% and 2.9% in core HICP. However, both figures lag behind February’s readings. The Euro may find support as market expectations for Eurozone inflation have tapered off. Recent dovish remarks from European Central Bank (ECB) officials, including President Christine Lagarde’s suggestion of imminent rate cuts unless surprised, contribute to a subdued inflation outlook. Lagarde also emphasizes the ECB’s vigilance on oil prices amid Middle East tensions.
