GBP trades flat, focus on UK, Eurozone inflation

The EURGBP cross remains steady around 0.8420 on Tuesday during European trading.

The European Central Bank rate cut and lower growth forecasts might further weigh on the Euro in the near term, while investors await the UK and Eurozone August inflation data on Wednesday for fresh impetus.

On Thursday, the Bank of England’s interest rate decision will also be in the spotlight.

The ECB decided to reduce its key deposit rate a quarter point to 3.5% last week as inflation eases. It was the second cut, after the first move in June.

ECB President Christine Lagarde stated during the press conference that the interest rate path ahead was “not pre-determined” and the central bank shall be “data dependent.”

On Monday, ECB Governing Council member Martins Kazaks said that the central bank will ease monetary policy further, though it shouldn’t do so too hastily due to lingering inflation risks.

The release of the Eurozone Harmonized Index of Consumer Prices (HICP) on Wednesday could offer some hints about the inflation trajectory in the Eurozone and might influence the ECB about the next move.

The headline and core inflation are projected to remain unchanged on a yearly basis in August. However, the hotter-than-expected outcome might prompt the ECB to slow its interest rate cut pace, which might lift the shared currency.

On the other hand, the BoE is expected to hold an interest rate at 5.0% on Thursday. However, cooling wage growth might trigger the UK central bank to cut at least once more by the end of the year.

“The tone of the August meeting and subsequent speeches have made it abundantly clear that officials don’t want markets running away with the idea that this is going to be a rapid easing cycle,” said James Smith, an economist at ING.

On Wednesday, the UK Consumer Price Index inflation data will be released. The CPI is expected to show an increase of 2.2% YoY in August, while the core CPI is estimated to rise 3.5% in the same reported period. The softer reading could prompt the BoE to consider another cut in November.

(Source: OANDA)