Following an early dip to over a one-month low, the EUR/GBP cross attracted some intraday buying on Thursday, though the attempted recovery lacked bullish conviction. The shared currency’s relative outperformance lacked any obvious fundamental catalyst and could be solely attributed to some repositioning trade ahead of the European Central Bank meeting.
Given that the ECB is now more concerned with inflation than growth, it is expected to continue the process of policy normalisation unless the economic situation deteriorates significantly. The central bank has the choice to end the Quantitative Easing (QE) program immediately or shift guidance to suggest that interest rates could increase as QE is unwound.
That said, concerns about the potential economic fallout from the Ukraine crisis could hold back the ECB from announcing any major changes to its monetary policy settings. Apart from this, some follow-through buying around the British pound, bolstered by the ongoing US dollar retracement slide, acted as a headwind for the EUR/GBP cross and capped any meaningful upside.
Euro boom? The old continent is seeing higher inflation, which is why the European Central Bank is set to tighten its policy and boost the currency – but the only booms are not economic, but those of Russian shells in Ukrainian cities. And that is a reason to fade any upward EUR/USD move.
Prices are rising all over the world, hitting Spain the hardest with a whopping 9.8% YoY advance, and also rising quickly in Germany, historically anxious about increases in prices. At 7.6%, the continent’s largest economy’s inflation rate is a tad higher than the eurozone level of 7.5% – and both are far above the ECB’s target of 2% annual inflation.
US markets opened lower after the latest US PPI numbers showed inflation in the US economy appears to be nowhere near close to peaking, although in the bond market yields fell back.
After US CPI hit its highest level since 1981 at 8.5% in March, in figures released Tuesday, there was some straw clutching going on that perhaps we might be nearing a peak in inflationary pressures in the US economy.
FX Street Morning Report- 14th April 2022
GBP>EUR – 1.2038
GBP>USD – 1.3135
EUR>USD – 1.0909
GBP>CAD – 1.6492
GBP>AUD – 1.7638
GBP>SEK – 12.413
GBP>AED – 4.8249
GBP>HKD – 10.299
GBP>ZAR – 19.236
GBP>CHF – 1.2275
· EUR ECB Deposit Rate Decision
· EUR ECB Interest Rate Decision
· EUR ECB Monetary Policy Decision Statement
· USD Retail Sales (MoM)(Mar)
· USD Retail Sales Control Group(Mar)
· EUR ECB Press Conference
· USD Michigan Consumer Sentiment Index(Apr)
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