Central Banks Signal Uncertainty as Inflation Concerns Persist
Daily Currency Update
The European Central Bank (ECB) announced yesterday that it would keep interest rates unchanged, providing little guidance on potential changes at their upcoming September meeting. ECB President Christine Lagarde emphasized that the decision was unanimously supported by council members. "The question of what we do in September is wide open," she remarked. Lagarde reiterated the need to monitor inflation closely, noting that it remains too high and that future decisions will depend on incoming data.In the UK, newly released figures show the employment rate holding steady at 4.4%, in line with market expectations. Despite a high number of individuals applying for income relief, the overall labor market is deemed healthy. However, persistent services inflation has led to market speculation that the Bank of England may delay rate cuts until later in the year.
Meanwhile, Federal Reserve council member Austan Goolsbee expressed optimism about inflation trends, stating that although progress is being made, "the fight is not over yet." He noted that the labour market is cooling, which aligns with the goal of achieving 2% inflation. These dovish comments suggest that the Dollar is likely to remain soft.
Key Movers
In Europe, the rapid pace of interest rate hikes in 2021 contrasts sharply with the current uncertainty surrounding rate reductions. Persistent inflation, particularly within labour markets, presents a significant challenge for the European Central Bank (ECB). Future moves for the Euro will hinge on data released throughout the summer.In the UK, average earnings—a key measure of wage growth and inflation—rose by 5.7% in the three months to May. This increase, though below market expectations, remains higher than desired by the Bank of England. Consequently, the Pound weakened slightly following this data release, further complicating predictions for the timing of the next rate cut.
Federal Reserve officials in the United States are increasingly optimistic about achieving their 2% inflation target. Market sentiment reflects this, with a 94% probability of a rate cut anticipated in August. The US Dollar has softened over the past month, a trend likely to continue due to the clearer inflation and economic outlook in the US compared to Europe and the UK.
Expected Ranges
- GBP/USD: 1.2900 - 1.3000 ▲
- GBP/EUR: 1.1850 - 1.1900 ▲
- GBP/AUD: 1.9270 - 1.9325 ▲
- EUR/USD: 1.0855 - 1.0925 ▲