EUR/GBP holds losses below 0.8735 during the early European session on Wednesday. The Pound Sterling(GBP) has edged slightly higher than the Euro(EUR) after the release of UK CPI Inflation data.
The key economic events that will be the focus of attention on the upcoming Friday will be the UK January Retail Sales Data and the Eurozone Purchasing Managers Index(PMI).
The recent data released by the Office for National Statistics, United Kingdom, on Wednesday has revealed that the nation’s headline CPI increased by 3.0% year-on-year in January, less than the increase of 3.4% in December.
This reading is aligned with the market expectations of 3.0%. The Core CPI, which does not include volatile prices of energy and food, rose by 3.1% year-on-year in January as compared to the previous reading of 3.2%, fulfilling the expectation.
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Moreover, the monthly UK CPI inflation turned out to be -0.5% in January from an increase of 0.4% in December. The markets anticipated a decrease of 0.5%. In response to the UK CPI inflation data, the Pound Sterling immediately attracts some buyers.
In the case of the Euro, investors expect the European Central Bank to preserve the standard interest rates at 2.0% throughout the year before possible rate increases next year. This would consequently support the position of the EUR against the GBP.
Traders are interested in getting more cues from initial PMI readings from Germany and the Eurozone on Friday. The stronger outcomes beyond expectations can play a significant role in uplifting the EUR in the near term.
The EUR/GBP should be watched closely over the next few sessions due to potential for short-term volatility stemming from mixed economic signals. The quiet UK CPI print implies there is little near-term pressure for the Bank of England to raise rates, while strong expectations of an unchanged ECB policy provide support for the euro currency.
Traders may want to take a conservative approach with respect to their positions as it relates to UK data releases and Eurozone PMI releases. Hedging strategies may prove helpful in reducing risk, particularly portfolio exposure to foreign currency fluctuations.
Long-term investors may be able to use this opportunity to reassess their position in GBP versus EUR based on future macroeconomic trends and guidance from central banks.
