Home Daily Commentaries Pressure mounts on ECB after Eurozone inflation reaches 8.1%

Pressure mounts on ECB after Eurozone inflation reaches 8.1%

Daily Currency Update

The pound appeared to be affected by the Russia-EU oil issues yesterday as it edged lower along with a number of other European currencies. In the weeks ahead some analysts are predicting some potential GBP weakness due to the deteriorating growth outlook around the UK. Economic data from the UK is very thin this week and volatility is likely to be minimal for the pound with the double bank holiday coming up. GBP/USD sits at around 1.26 at the time of writing.

Key Movers

Eurozone inflation reached a record high of 8.1% year-on-year across May. The euro slipped over the course of the day yesterday to a low of around 1.07 vs the US dollar, but it could be due to receive a boost from European Central Bank actions. The pressure is mounting on the central bank to combat record levels of inflation with their most aggressive tightening cycle in history. The euro may therefore indirectly benefit from higher levels of inflation, as it has become clear that the ECB are now at a position where they are ready to act on it. 50bp interest rate hikes have been suggested as an option for the central bank. This would be the largest interest rate hike in the ECB’s history and would also be the first hike since 2011.

The US dollar appreciated yesterday and this morning as it has benefitted from the Russia-EU oil conflict, along with some US consumer confidence data that beat expectations. The dollar index – which measures the US dollar against a basket of its major rivals – rose by 0.29% to 102.05. With the market mood turning a little sour yesterday, the dollar was able to benefit from its safe-haven status as investors tend to move towards these assets during uncertain times.

Expected Ranges

  • GBP/USD: 1.2565 - 1.2655 ▼
  • GBP/EUR: 1.1705 - 1.1790 ▲
  • EUR/USD: 1.0685 - 1.0770 ▼
  • GBP/AUD: 1.7510 - 1.7595 ▼