Euro weakens as price levels cool

The Euro has lost ground in the last 24-hrs following sets of data showing that Euro-zone inflation has slowed markedly this month.

Last month we saw a near four-year high in Euro-zone price levels, but yesterday morning’s preliminary inflation readings from Germany showed a drop, and official readings for the whole bloc just came in below forecasts. Inflation is now back below the ECB’s target, which ultimately means that they will be in no rush to tighten monetary policy (e.g. put interest rates up)

In other news, the Pound has generally improved since the triggering of Article 50, as the general tone from the UK government and EU seems more conciliatory and traders have already heavily priced-in worst case scenario negotiations. That’s not to say the Pound is out of the woods yet because it could quickly lose ground again if the talks turn sour early on. However, If the negotiators continue to be friendly and headlines positive, then the market might start to rebuild their long positions on Sterling, as it is still very cheap around these levels.

As a result, the GBP/EUR is at a 4-week high which is up nearly 2.5cents from Wednesday’s low. A weekly close around these levels could reduce the friction of it going higher. The EUR/USD has dropped to a 2-week low and the GBP/USD remains reasonably steady around the 1.24 mark.

Surprisingly good UK retail sales boost Sterling

The pound has just broken higher following stronger-than-expected UK retail sales data.

Traders were closely watching the release of today’s number as an important indicator of how much consumer sentiment is cooling since prices have boosted. For the first time in three months, however, the figures came in positive at +3.7% year on year and +1.4% month on month. This, along with Tuesday’s high inflation reading and last week’s BoE interest rate meeting, has increased the appeal of Sterling as the odds of a BoE rate hike in 2017 have risen to around the 40% mark.

As a result, the GBP/EUR is trading around a 3-week high and GBP/USD at a 4-week high.

Euro firmer following Dutch election and Fed meeting

The Euro is firmer this morning after yesterday’s Dutch election and Federal Reserve interest rate meeting.

Dutch centre-right Prime Minister (Rutte) won the most seats, fighting off the far-right candidate (Wilders) who received less votes than expected. Although the far-right candidate was extremely unlikely to gain power, due to how parliaments are formed in Holland, the amount of votes he received was being used as a barometer to see how much momentum populism has in Europe following Brexit and Trump’s election. With key elections in France and Germany this year, this result reduces concerns that anti-EU parties will gain power within these major EU countries and thus supports the Euro.

In other news, the Federal Reserve increased interest rates last night by 0.25%. This move was fully priced into the markets, so all eyes were on the accompanying press statement and their expectations for further rate hikes. Generally the Fed took a more cautious tone than anticipated and they did not indicate any quickening in the pace of rate increases. They signalled just two more hikes for this year, which disappointed the USD bulls that are pricing in three more the year.

As a result, the EUR/USD pushed up over 1-cent and currently trades at a 5-week high. This pushed GBP/EUR down around half a cent and the GBP/USD up nearly 1-cent.

Next up we have some Euro inflation data out this morning but eyes turn to this afternoon’s Bank of England interest meeting. This is expected to be a bit of a non-event, and with the latest UK figures coming in weaker-than-expected, Mark Carney is likely to take a slightly more pessimistic tone.