GBP EUR & GBP USD Exchange Rate Hinge On Future Central Bank Policy

Published: Friday, 14 June 2013 09:00 BST - Written by David Woodsmith

STORY LINK GBP EUR & GBP USD Exchange Rate Hinge On Future Central Bank Policy

The twin highlights of today’s session come in the form of this morning’s whole of eurozone CPI inflation data for last month and this afternoon’s US Michigan Sentiment Index. The figures from either side of the Atlantic have one common thread – they are both highly likely to have a bearing on investors’ thoughts on the likely future direction of central bank monetary policy in their respective economies.

The euro area price rise data leads the way this morning and analysts are anticipating that the finalised version of the year-on-year figure will show a core level of inflation of 1.2%, slightly up from April’s print of 1.0%. If expectations are correct, then the European Central Bank will be afforded further leeway to loosen its already slack monetary policy. Such an outcome could lead to selling pressure on the euro of a similar magnitude to that which the single currency endured following yesterday morning’s publication of the ECB monthly report, which noted that price rises in the euroland remained well under control. By the middle part of the European session, the Sterling to euro exchange rate was trading up to close to the 1.1800 threshold as a consequence.

Meanwhile, although this afternoon’s Michigan Confidence Survey is a regional snapshot of optimism, it still remains one of the most closely-watched data releases of any monthly economic calendar. The previous two editions of the survey have beaten expectations, if today’s edition follows suit, then expect renewed talk of an imminent tapering of Quantitative Easing from the Federal Reserve. This would be likely to trigger a sustained bout of support for the Greenback, sending the Pound to US Dollar exchange rate (currency : GBP USD) back down towards the middle 1.5000s once more. If such market babble continues into next week, a retracement back towards the 1.5000 level would appear to be a possibility for Cable as Wednesday’s Federal Reserve policy announcement looms into view.

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