- EUR/GBP trades in negative territory for the third consecutive day near 0.8560 in Friday’s early European session.
- The German HICP inflation came in line with consensus, rising by 2.6% YoY in July.
- The Cable will be impacted by the BoE rate cut expectation for the time being.
The EUR/GBP cross trades with mild losses around 0.8560 during the early European session on Friday. Traders await the release of UK monthly employment data, which will be released next Tuesday.
Data released by the German statistics office Destatis on Friday showed that the German Harmonized Index of Consumer Prices (HICP) rose 2.6% YoY in July. This figure was in line with the market expectation. On a monthly basis, the HICP inflation remains unchanged at 0.5% MoM versus 0.5% prior.
The European Central Bank (ECB) policymaker Olli Rehn said on Wednesday that the ECB can continue cutting interest rates if there is confidence among policymakers that the inflation trend is slowing in the near future. The central bank left interest rates on hold at its July meeting. ECB President Christine Lagarde said during the coast conference the question of any move in September is wide open.
On the other hand, the Pound Sterling (GBP) will be influenced by the expectation of a rate cut by the Bank of England (BoE) amid the lack of top-tier economic data released. The BoE lowered its benchmark rate to 5.0% from a 16-year high of 5.25% last week. The UK central bank suggested that the central bank will use a cautious approach in its policy normalization process.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD: Rebound falters around 0.6650
AUD/USD suffered the persistent weakness in the commodity complex and gave away part of the weekly robust advance to as high as the 0.6650 zone, or multi-day highs, on Wednesday.
EUR/USD reaches new 2024 highs well past 1.1000
EUR/USD advanced modestly and looked to consolidate the recent breakout of the key 1.1000 barrier, reaching new yearly peaks around 1.1050 following the vacillating price action around the Greenback post-US CPI.
Gold retreats sharply as investors seek high-yielding assets
Gold remains under modest bearish pressure and trades below $2,460 in the second half of the day on Wednesday. Although the US Dollar stays on the back foot after the July CPI data, XAU/USD finds it difficult to push higher as sentiment turns mixed.
Ethereum may see a rally following rising ETF inflows and low CPI data, key triangle could prove crucial
Ethereum (ETH) is down 1.7% on Wednesday as low Consumer Price Index (CPI) inflation data and rising ETH ETF inflows hint that a rally may be imminent. However, a key trendline suggests ETH may repeat history by consolidating for a few weeks before beginning a fresh upward move.
Rebound in risk appetite takes a breather
US inflation failed to provoke much volatility this afternoon, while oil prices have fallen back from their recent highs, says Chris Beauchamp, Chief Market Analyst at online trading platform IG.