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Forex snapshot

GBP/USD has collapsed after UK inflation figures declined more than expected, while EUR/USD waits for this afternoon’s US inflation figures.

Euro and US dollar notes
Source: Bloomberg

Euro traders cautious ahead of US inflation data

EUR/USD continues to be weak this morning as currency traders are all too aware of this afternoon’s US inflation figures. The euro has spent most of the month bobbing along just below the $1.34 level as it has had to absorb one piece of bad economic data after another from eurozone nations. More worryingly has been the fact that Germany has succumbed to the disappointing trend of its eurozone counterparts by posting poor data too.

The last week has seen equity markets stage a rally as expectation and hope have led to the belief that the European Central Bank will be forced into taking more action because of the eroding confidence and results.

The week could still offer plenty of twists and turns as we await tomorrow’s eurozone manufacturing and services data, then Friday’s speech from ECB president Mario Draghi on the international platform of Jackson Hole.

Spot FX EUR/USD chart

UK CPI weighs on GBP/USD

The Bank of England governor Mark Carney has done his best over the last 48 hours to add a little uncertainty and volatility to the GBP/USD markets, with his contradictory comments over the Monetary Policy Committee’s timeline in the weekend’s press. This has been followed up with the UK’s CPI inflation rate falling by more than expected, down to 1.6% year-on-year. When you consider how long it was stationed above the 2% target, a period of time below is not necessarily a bad thing. This will ease the pressure that MPC members might have felt to start increasing the interest rate.

I maintain my thinking that with inflation falling, earnings growth below targets, and in the run up to the year-end retail sales period, now is not the time for change.

Swiftly following the release of these inflationary figures cable dropped by 40 pips and now sits some 80 pips lower than where it was trading at 7am (London time).

Spot FX GBP/USD chart

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