European inflation doesn’t deter interest rate expectancy
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Daily Currency Update
Eurozone inflation rose to 2.6% in May, according to the statistics agency Eurostat's report on Friday. Core inflation, which excludes the volatile effects of energy, food, alcohol, and tobacco, increased to 2.9% from 2.7% in April. Meanwhile, services inflation rose from 3.7% to 4.1%.This news comes ahead of this week’s European Central Bank (ECB) decision, where a 25-basis point interest rate cut is widely expected at the meeting on June 6th. Despite the recent inflation figures, market participants do not appear to have been significantly swayed.
Europe was not the only major region to release an inflation update on Friday. The Federal Reserve’s (Fed) preferred measure of inflation, the core personal consumption expenditure deflator, came in at 0.2% month-on-month. This result indicates some easing of the Fed’s inflation concerns, but consistency will be key to raising expectations for a rate cut in September.
In currency markets, GBP/USD has traded within a narrow range over the past 24 hours, touching a low of 1.2705 and a high of 1.2760. The pair is at the lower end of this range this morning. GBP/EUR has seen a similar trading pattern, with a high of 1.1760 and a low of 1.1710. The pair opened mid-range this morning. EUR/USD touched 1.0880 on Friday but has fallen back below 1.0850 today.
Key Movers
Significant macroeconomic data is expected from the US today. The final manufacturing PMI is anticipated to be above 50.0, indicating expansion. Throughout the week, several key data releases are scheduled, including daily jobs data and services PMI data tomorrow, which is also expected to show expansion.The most notable data release this week will likely come from Europe, with the ECB announcing its interest rate decision. A 25-basis point cut, bringing the overnight rate from 5% down to 4.75%, is widely expected. This expectation has been factored into EUR movements over the past few weeks. However, a larger cut or no cut at all would certainly add volatility to the EUR.
Expected Ranges
- GBP/USD: 1.2660 - 12770 ▼
- GBP/EUR: 1.1710 - 1.1780 ▲
- GBP/AUD: 1.9050 - 1.9280 ▲
- EUR/USD: 1.0790 - 1.0880 ▲