GBP/EUR: Will UK Inflation Data Pull Pound Lower?

The European Central Bank upwardly revised economic growth forecasts and back tracked on any prior efforts to talk down the value of the Euro, at its monetary policy meeting and accompanying press conference.

ECB President Christine Lagarde confirmed that the Euro exchange rate was a topic of discussion, however the central bank will just “monitor carefully”. Market participants had expected the ECB to adopt a harder line on additional Euro strength, particularly after inflation unexpectedly turned negative in August.

Inflation fell to -0.2% year on year down from +0.4% the previous month.and core inflation plunged to 0.4% compared to a year earlier, down from 1.2%.  Euro strength puts downward pressure on inflation because it makes imports cheaper and exports more expensive.

here will be more ECB policymakers hitting the newswires today and they should be closely listened to. The central bank’s chief economist Philip Lane has already said that there is ‘no room for complacency’ with inflation well below target.

On Wednesday, EUR/USD briefly hit and rebounded off the 50-day SMA (simple moving average). This as the first time this the 50 day SMA has been threatened in around 3.5 months. The latest upward trend could come under pressure, unless there is a move above 1.2012., Any dovish noises from the ECB or US dollar strength could see the 50-dma,(today at 1.1772), tested again.