EUR/GBP recovery stalls below 0.8820 with UK CPI on sight

The Euro is trading practically flat against the Pound Sterling on Tuesday. The pair’s recovery attempt from Monday’s lows at 0.8795 has stalled below the 0.8715-0.8720 area with investors wary of risk, awaiting the release of UK Consumer Prices Index (CPI) figures, due on Wednesday.

The Euro holds above 0.8800 against the Pound but is lacking acceptance above 0.8820.
The pair is trading within previous ranges ahead of the UK inflation report.
The risk-averse market mood is keeping Euro bulls in check.

UK consumer inflation is expected to have accelerated to a 0.4% monthly rate in October from a flat reading in September. The yearly inflation, however, is seen easing to a 3.6% growth after three months at 3.8%, amid lower prices for food and moderating energy costs.

UK inflation may pave the path for BoE easing

The core CPI, considered more relevant for monetary policy setting, as it strips out the seasonal influence of food and energy, is expected to have eased to a 3.4% yearly rate, down from 3.5% in September and extending its decline from July’s peak of 3.8%

The market may interpret these figures as a green light for the Bank of England to ease monetary policy in December or January, pressured by the weak Gross Domestic Product (GDP) and employment figures reported last week. Such an outcome is likely to send the Pound lower across the board.

The Euro, on the other hand, is showing a moderate weakness amid the risk-off markets, in the absence of first-tier macroeconomic releases in the Eurozone. Later this week, the region’s final inflation data and the preliminary Purchasing Managers’ Index (PMI) figures might determine the common currency’s near-term direction.

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

Core Consumer Price Index (YoY)

The United Kingdom (UK) Core 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. The YoY reading compares prices in the reference month to a year earlier. Core CPI excludes the volatile components of food, energy, alcohol and tobacco. The Core CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.