EUR/GBP drifts to 0.8670 lows after soft Eurozone inflation data

The Euro trims losses following rejection at two-week highs near 0.8700.
UK inflation remained steady in August, but the core CPI and services inflation eased.
In the Eurozone, consumer inflation cooled in August, but the Core CPI remained steady.

Guillermo Alcala FXStreet

The Euro has given away some of Tuesday’s gains on Wednesday. The pair pulled back from two-week highs a few pips shy of 0.8700, although it remains steady above the 0.8670 level so far.

In the UK, National Statistics data revealed that consumer inflation remained fairly steady above the bank’s 2% target rate in August. The CPI kept growing at a 0.4% monthly rate and 3.8%, unchanged from July, but still below the 3.9% and 0.5% readings anticipated by the market’s consensus.

The core CPI, on the other hand, eased to 3.6% from 3.8% in July, in line with market expectations and services inflation cooled to a 4.7% year-on-year growth from the previous month’s 5% pace. These figures have watered down the impact of the stronger headline figures.

The Euro, however, has failed to draw any significant support as Eurozone inflation figures have shown a similar trend. The headline HICP eased to a 2.0% year-on-year growth and a 01% monthly reading against expectations of steady inflationary pressures, at 2.1% and 0.2% respectively. Core inflation, in this case, has remained unchanged from the previous month growing at a 0.3% rate from July and 2.3% from August last year.

Economic Indicator

Consumer Price Index (YoY)

The United Kingdom (UK) Consumer Price Index (CPI), released by the Office for National Statistics on a monthly basis, is a measure of consumer price inflation – the rate at which the prices of goods and services bought by households rise or fall – produced to international standards. It is the inflation measure used in the government’s target. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.

Why it matters to traders?

The Bank of England is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.

Economic Indicator

Harmonized Index of Consumer Prices (YoY)

The Harmonized Index of Consumer Prices (HICP) measures changes in the prices of a representative basket of goods and services in the European Monetary Union. The HICP, released by Eurostat on a monthly basis, is harmonized because the same methodology is used across all member states and their contribution is weighted. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish.

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