GBP/USD: Pound Resumes Climb Post Brexit Vote Drop

The Pound is edging mildly lower after ending on Tuesday in positive territory.

The Pound Euro exchange rate rallied 0.3% in the previous session to settle at €1.1211.

At 06:15 UTCM, GBP/EUR is trading -0.1% at €1.12 as investors look head to inflation data from both sides.

GBP: Inflation To Drop Below 1%

Analysts are expecting UK inflation data to show that consumer prices declined -0.1% month on month in April, down from a 0% change the previous month. On an annual basis, analysts are forecasting a drop below 1% for inflation, down from 1.5% and well short he of the 2% target.

Oil prices tumbled and the British public remaining in lockdown in April meant demand for goods evaporated dragging prices lower. Core inflation, which excludes the more volatile items such as food and fuel is expected to creep just 0.6% higher compared to a year ago, down from 0.9%.

A sharp fall in inflation could prompt the Bank of England to take further action to cushion the blow of the coronavirus outbreak on the UK economy when they meet in June. Settling negative borrowing rates could be on the card. The prospect of negative rates  is keeping the Pound under pressure in early trade on Wednesday.

Today’s data comes after dismal UK jobs data yesterday, which revealed that jobless claims jumped by 865,500 in April as the covid-19 lockdown measures paralysed the British economy.

Brexit has returned as a key theme for the Pound. EU -UK trade talks have not been progress particularly well. Tensions between the two sides are very fraught right now. On a positive note, the British government set out post-Brexit tariff on Tuesday to give it leverage in trade talks.

EUR: German – French Recovery Fund Runs Into Trouble

The Euro was under pressure in the previous session after Merkel and Macron’s plans to fund economic recovery runs into obstacles less than 24 hours after being announced. The radical plan which would see the EU collectively finance its response to the coronavirus crisis. However, some countries have been quick to disapprove and veto the proposal.

Whilst the French and German leaders have thrown their weight behind the plan, Austria, Denmark, Sweden and the Netherlands oppose joint debt.

Attention will now turn to eurozone inflation data. Analysts are expecting consumer prices to increase 0.3% month on month in April. On an annual basis inflation is expected to increase just 0.4%


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