Current levels
The EUR/GBP cross trades around 0.8533, recovering after earlier this month it hit its lowest level in over a year.
UK inflation report
- Consumer Price Index (CPI) for June rose 0.1%, matching expectations and down from May’s 0.2% increase.
- Annual inflation eased to 2.6% from 2.8%, below the 2.7% forecast.
- Core inflation held at 2.6%, above the expected 2.5%.
Bank of England outlook
The mixed inflation and weak wage growth reduce the likelihood of an immediate BoE rate hike. Swaps pricing indicates a full 25bps hike to 4.00% in November, with a total of 75bps of tightening expected over the next twelve months.
Additional risks
Energy prices are rising due to renewed US-Iran fighting, keeping inflationary pressures elevated. Investors are also monitoring fiscal policy under UK Prime Minister Andy Burnham.
Euro perspective
The European Central Bank’s decision on Thursday is the main event for EUR. The Deposit Facility Rate is widely expected to remain at 2.25% after a 25bps hike in June, with another potential increase in September if energy-driven inflation risks persist.
