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The February preliminary EU inflation data added to the full sweep of hotter than expected inflation prints across Europe after Germany’s hot number yesterday. The core EU CPI number was +5.6% YoY, a full 0.3% above the 5.3% expected and the 5.3% high of the cycle in January. European short rates were already ramping so aggressively into today that even this data point failed to make an additional impact as German 2-year yields, for example, have ramped from below 2.9% at the start of this week to a high just above 3.25% today before support finally came in for bonds.

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The sterling had rallied hard recently after a stronger than expected Service PMI and then on the post-Brexit settlement deal over Northern Ireland. EURGBP teased a move back into the lower zone this week, only to have the rug torn out from under sterling by the cavalcade of hot EU inflation prints, but more importantly in yesterday’s case on Bank of England Governor Bailey’s rhetoric. Mr. Bailey is apparently not yet for returning to a more cautious stance after the last meeting’s confident forecast for inflation to return to below 2% by the end of next year. Bailey said “I would caution against suggesting either that we are done with increasing Bank Rate, or that we will inevitably need to do more....nothing is decided.” EURGBP is choppy here and failed to sustain the move above 0.8900 last time and European data is set to get quieter until the March 16 ECB meeting. The next UK CPI print is not up until March 22. The pair has to prove itself beyond the range extremes of 0.8725 to 0.8975 of this year for next steps.

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