Forex snapshot

Alastair McCaig looks at how recent economic data has affected the EUR/USD and GBP/USD pairs.

GBP/USD still likely to head higher

This morning has seen the Office for National Statistics (ONS) post a bigger than expected rise in inflation, as it jumped from 1.6% up to 1.8%. Last month saw earnings growth increase at a faster rate than inflation for the first time in years and only a couple of weeks later, inflation had once again overtaken it.

GBP/USD had spent most of the morning creeping higher in anticipation of this morning’s data, but since the release it has dropped almost all of the morning’s gains. As David Madden pointed out yesterday, the concerns that Bank of England governor Mark Carney has over the UK housing market are unlikely to be eased with the ONS confirming that house prices driven by the London market had increased by 8.5% in England.

The outlook still remains for the GBP/USD price to head higher even if today’s data might offer short-term weakness.

Spot FX GBP/USD chart

EUR/USD continues to hover below $1.37

This morning’s slightly disappointing German PPI data has hardly seen any change to the EUR/USD, as it continues to hover just below the $1.37 level. The initial euphoria that met the news of Mario Draghi confirming he would take action in June to tackle the strength of the Euro, has now died down as the markets wait for more than words.

The next catalyst for the EUR/USD pair looks to be Thursday’s plethora of manufacturing and service purchasing managers index figures from France, Germany and the EU. The guidance that these will give the markets on the health of the EU economy will probably drive the EUR/USD rate until the weekend. Also on Thursday will be the start of the two day European elections, although these are unlikely to have the same impact on the currency markets.

As David stated yesterday the lack of strong German PPI data is likely to result in continued EUR/USD weakness.

Spot FX EUR/USD chart

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