Euro/Pound exchange, waiting for inflation data

Due to market views that monetary policy in the Eurozone and UK were on track to diverge over the next year, the Euro to Pound (EUR/GBP) exchange rate fell last week.

Seeing its second consecutive weekly fall, EUR/GBP opened the week at the level of 0.8721 and lost around half a cent, ending the week near the level of 0.8664.

EUR/GBP briefly touched a 10-month-low of 0.8630 on Friday and dipped on Monday morning due to a lack of market demand for the Euro.

However, amid a lack of strong drivers for each currency in recent sessions and with markets generally focusing on geopolitical issues, the Euro to Pound (EUR/GBP) exchange rate could see narrow movement until key data is published.

EUR/GBP investors are highly anticipating Eurozone and UK inflation data, due on Wednesday, which could influence central bank speculation further and alter the outlook for the pair.

Last week’s news did little to make the Euro look more appealing to investors, as many influential prints fell short of market expectations and the European Central Bank’s (ECB) latest meeting minutes were relatively dovish.

The bank showed concern about the strength of the Euro itself, as well the possibility of the Eurozone being ensnared in a potential US-China ‘trade war’.

While trade jitters have faded somewhat, investors have had little reason to buy the Euro (EUR) either, especially with the ECB concerned that the currency is too strong.

This has meant less resistance to the Pound’s (GBP) strength and has made it easier for EUR/GBP to fall.

Analysts reckon the Pound’s worst days of trade driven by Brexit headlines may be behind it – at least for now, and this has meant that investors are buying the currency again on fundamentals.

Market hopes that the Bank of England (BoE) will hike UK interest rates in May and then again within the next year if Britain’s economic outlook remains relatively sturdy has have left investors hawkish on Sterling.

Still, last week’s UK data was underwhelming which has left traders hoping for stronger UK data this week. If UK data is strong, investors will have even more reason to remain optimistic on the Pound outlook.

While Tuesday will see the publication of some notable Eurozone and UK ecostats, they may only have a limited impact on the Euro to Pound (EUR/GBP) exchange rate compared to the potential influence from Wednesday’s Consumer Price Index (CPI) results.

ZEW’s April economic sentiment survey results from Germany and the Eurozone overall will be published on Tuesday, as well as Italy’s final March inflation rate.

Tuesday’s UK data will be even more influential. Britain’s February job market results will be published, and if UK wage growth falls short of expectations it is likely to weigh heavily on the Pound too.

Still, solid UK job market data will keep pressure on EUR/GBP.

If UK inflation is high on Wednesday too, the Euro to Pound (EUR/GBP) exchange rate is likely to remain low for much of the week – unless Eurozone inflation comes in notably better than expected too.

Inflation data is likely to drive European Central Bank (ECB) and Bank of England (BoE) speculation, so it is likely to be the main driver of EUR/GBP this week.