EUR/GBP eyes above 0.8700 as UK Hunt seems confident of halving Inflation by year-end
25.05.2023, 00:25

EUR/GBP eyes above 0.8700 as UK Hunt seems confident of halving Inflation by year-end

  • EUR/GBP is looking to shift its auction profile above 0.8700 as UK Inflation is expected to be halved by the end of CY2023.
  • UK inflation for April softened but remained well-above estimates.
  • A Eurozone economic slowdown could force the ECB for early consideration of interest rate cuts.

The EUR/GBP pair is displaying topsy-turvy moves after failing to sustain above the round-level resistance of 0.8700 in the Tokyo session. The upside in the cross seems favored despite the United Kingdom’s inflation failing to match expectations.

On Wednesday, UK inflation for April softened but remained well-above estimates. Headline UK Consumer Price Index (CPI) softens sharply to 8.7% and ditched placement in the double-digit territory but remained above the estimates of 8.2%. The decline in headline inflation was due to lower gas prices. However, core CPI that excludes oil and food prices jumped to 6.8% vs. the estimates of 6.2%.

The street is criticizing Bank of England (BoE) policymakers for failing to bring down stubborn inflation. Higher-than-anticipated UK inflation might force BoE Governor Andrew Bailey to announce more interest rates ahead. Considering the persistence in the UK inflation, it seems that promise made by UK PM Rishi Sunak of halving inflation by the end of the year would get missed.

Meanwhile, UK Finance Minister Jeremy Hunt remained confident that the target of halving inflation this year is absolutely deliverable. He further added that inflation must come down for cutting taxes safely.

On the Eurozone front, weak economic prospects are favoring less room for further interest rate hikes by the European Central Bank (ECB). Analysts at Commerzbank cited “The PMIs are already suggesting that the ECB’s rate hikes will hit the Eurozone economy at some point. That means that the doves on the ECB board might gain the upper hand at some stage, at which point the Euro would lose important support.”

Also, a Eurozone economic slowdown could force ECB President Christine Lagarde for early consideration of interest rate cuts.

 

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