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Euro pound (EUR/GBP) edges higher amid data lull

Euro pound (EUR/GBP) ticks up ahead UK inflation data

The euro pound (EUR/GBP) exchange rate is climbing higher morning amid a spell of risk-averse trade and the latest European Central Bank (ECB) remarks.

At the time of writing the EUR/GBP exchange rate is trading at €0.8454, up approximately 0.2% from this morning’s opening rate.         

Euro (EUR) strengthens amid risk-aversion

The safe-haven euro (EUR) is edging higher today amid a waning appetite for risk.

Meanwhile, markets look towards the latest ECB commentary for any fresh EUR impetus.

Speeches from prominent central bank rate-setters today may serve to drive additional volatility for the common currency, with ECB Chief Economist Philip Lane kicking off the commentary this morning.

Lane reiterated the ECB’s data-driven approach towards monetary policy, expressing confidence that inflation would soon reach the central bank’s 2% target rate.

The senior rate-setter commented:

‘It’s fair to say momentum at the start of the year in services was relatively high. So I think this is an example where we need to see the momentum come down in the second half of the year.

There’s a lot, a fair amount of confidence about the destination in the second half of next year. So we do have to interpret the incoming data carefully, but to differentiate the noise and the signal.’

Addressing the ECB’s July meeting, Lane also stated that the central bank will not have received enough necessary data to confirm its forward path, serving to buoy the common currency.

Pound (GBP) falters ahead of CPI print

The pound (GBP) is facing headwinds this morning as markets anticipate the UK’s upcoming inflation print.

With fresh UK releases in short supply, investors appear reluctant to place any aggressive bets on GBP ahead of this week’s weighty inflation release.

Economists anticipate that both core and headline inflation will have eased to 3.5% and 2%, respectively, with the latter dipping to its lowest level since July 2021 and touching the Bank of England’s (BoE) 2% target rate.

Should headline inflation ease as forecast, signalling that the central bank will be ready to cut interest rates during the summer months, GBP will likely tumble against its rivals amid ramped up rate cut bets.

Dan Hanson and Ana Andrade of Bloomberg Economics, commented:

‘All eyes will be on the services CPI reading, following April’s stronger-than-expected print. Looking ahead, headline inflation will probably fall below 2% in June, clearing the way for rates to be cut in August.’

While the likelihood of a June rate cut is now largely diminished, signs that monetary loosening lies around the corner may serve to stifle GBP as the session progresses.

Euro pound exchange rate forecast: German economic sentiment in focus

Looking ahead, the latest ZEW economic sentiment index is due for release in Germany. The survey, based on the outlooks of over three-hundred analysts, is due to rise to 50, reaching its highest level since July 2022. Should the data print as expected, signs of gradually recovering economic optimism in the Eurozone’s largest economy may serve to boost the common currency.

A lack of immediate releases in the UK could see the increasingly risk-sensitive pound driven largely by  market risk dynamics, with any upbeat trade boosting GBP against its safe-haven rivals ahead of some high-impact releases mid-week.