Today, the focus of the investors in the currency market is on the publication of important data – consumer inflation in the UK and the eurozone, which can have a noticeable impact on the pound and euro exchange rates in pairs with the US dollar.
During the last few months, the markets have been fully focused on expectations of an increase in the US interest rates amid the rising inflation, which rose to 5.4% according to official statistics. Other calculation methods indicate a stronger growth of over 10%. However, it is not only in the United States that inflationary pressure is increasing. This phenomenon is also observed in Europe, although not on such a scale. In any case, the values of consumer inflation have surged to an acceptable level of 2.0%, which causes fair concerns from the Bank of England and the ECB.
Earlier, the leaders of the British regulator and the Central Bank of the eurozone raised the topic of a possible increase in interest rates if inflationary pressure strengthens over time. If a discussion about the real terms regarding the prospects of a rate hike in the US began, then some believe that the first rise in the cost of borrowing will take place sooner rather than later, while others believe the opposite. In Europe, these expectations have increased markedly. Only the latest data presented can change these sentiments, and best of all, the formation of a trend in the dynamics of inflation.
September's consumer inflation data in Britain have already been published today, which showed a slight correction to 3.1% from 3.2% in annual terms. As for the monthly terms, it grew by 0.3%, which is lower than the August figures of 0.7% and the growth forecast of 0.4%.
The presented values may indicate either a short-term seasonal correction or perhaps, the beginning of a radical change in the trend, which is actually hard to believe.
So far, the GBP/USD pair has reacted sluggishly to the UK's inflation news. It is possible that there will be a more significant reaction on the opening of the American trading session or around that time. A slight decline in inflation may lead to the pair's correction, the depth of which will also depend on the EU's inflation data.
Eurozone's consumer inflation will be released today at 9:00 Universal time. The inflation rate is expected to remain at 3.4% in annual terms. The indicator should rise by 0.5% from September against 0.4% a month earlier.
How will the EUR/USD pair react to a slight decrease in inflation in the region?
We believe that this can serve as a reason for its local decline, as well as in a pair with GBP/USD. But f the figures show its growth, then the euro will receive support and will resume the upward dynamics dragging the pound along with the dollar. However, it will also be limited due to the potentially strong fundamental position of the US currency on the wave of possible prospects for an earlier rate hike in the US.
In general, noticeably small changes in the movements of the GBP/USD and EUR/USD pairs should be expected due to the significant influence of mutually directed forces that support the euro, pound, and dollar.
Forecast of the day:
The EUR/USD is making a downward correction amid expectations of the publication of data on consumer inflation in the eurozone. A decline below the level of 1.1625 amid a possible deceleration of inflation in the region will allow the pair to further fall to 1.1570.
The GBP/USD corrected down to the level of 1.3770 amid the UK's consumer inflation data, which showed a slowdown in the rate of growth. A price decline below this level will lead to a further drop in the pair to the area of 1.3700-05.
