- EUR/USD turns bullish amid inflation concerns in the UK.
- Analysts still believe that BOE might have to adopt negative interest rates.
- Unappealing UK inflation data favors the Euro.
The EUR/GBP exchange rate kicked off Thursday’s trading session on a bullish run courtesy of the Euro’s gains against the Pound Sterling. The Euro’s gains against the GBP are courtesy of the negative investor reaction to the unappealing UK inflation data. The UK’s inflation levels have slipped to 0.8%, which is a level previously seen in 2016 and was significantly lower than BOE’s 2% estimate. The British consumer prices also experienced an unfavorable decline to -0.2%.
The unfavorable market data, including the inflation data, have contributed to the Pound’s weakness, thus paving the way for the Euro’s gains. Investors have been increasingly worried about the inflation levels, so they have been exercising caution when it comes to investing in the GBP. The GBP has also tanked on the expectation that the BOE might lower interest rates to zero or adopt negative interest rates to try and cushion the UK economy from the coronavirus-induced economic downturn.
Meanwhile, the Euro has been soaring for the past few days, largely thanks to France and Germany’s push for the creation of a 500 billion Euro relief fund to be used to combat COVID-19’s economic impact. The news of the relief fund boosted investor confidence in the Euro, thus paving the way for some gains.
Investors are waiting to see how the EUR/GBP exchange rate will behave towards the end of the week, especially with the release of key market data. Some of the data expected to be released on Thursday afternoon include The French Flash Services PMI, which is expected at 27.9 compared to the previous figure at 10.2. The French Flash Manufacturing PMI is expected at 36.0 compared to the previous 31.5.
German flash manufacturing PMI is forecasted at 39.3 compared to the previous 34.5, the German Flash Services PMI is expected at 26.3 compared to the previous 16.2. The expected PMI data may provide a significant impact on the exchange rate performance.