EURGBP extended gains for the second successive session, trading around 0.8420 on Thursday. The Euro remains strong as the European Central Bank decided at its July Monetary Policy Meeting to maintain its main refinancing rate at 4.25%, as expected. The ECB’s deposit facility rate also remains unchanged at 3.75%.
Traders are now looking to further comments by ECB President Christine Lagarde on monetary policy. Lagarde is unlikely to outline a specific path for rate cuts, but is expected to emphasize the need for more data to ensure confidence in the disinflation process before considering further policy easing.
“The tone of the statement was roughly unchanged, but there were some growing signs of caution on the growth and employment outlooks,” said TDS FX analysts. “Not much for the Euro to nibble on here, leaving the price action mostly unchanged. No one was looking for fireworks [on Thursday], so focus will turn towards data and the outlook for inflation. Markets continue to expect another move in September.
“For EURUSD, much of the focus has come from the US side, with rate differentials moving in the EUR’s favor,” said the TDS FX analysts.
EURUSD appreciated by 2.1% to 1.0940 so far in July from its trendline support near 1.07, said DBS senior FX strategist Philip Wee. “This month’s rally was attributed to the ECB’s signal at its forum in Sintra (on July 2) for a pause at Thursday’s governing council meeting vs. more Fed officials opening the door for a rate cut this year on US inflation resuming its decline amid over the rise in the unemployment rate.”
DBS’s Philip Wee added that, “politically, the Euro was relieved that the far-right National Rally party fell to third position in the second round of the French elections, despite its outsized gains in the first round. However, EURUSD is coming up against a significant trendline resistance of around 1.0970. EUR is feeling the drag from some unwinding of yen carry trades,” the DBS strategist concluded.
UK Economic Indicators and Market Reactions
On the GBP front, the UK Claimant Count Change, which measures the number of people claiming jobless benefits, rose to 32,300 in June, surpassing market expectations of 23,400. The previous month’s figure was revised from 50,400 to 51,900.
Additionally, the ILO Unemployment Rate held steady at 4.4% in the three months to May, matching the previous period’s rate. The market consensus was also for a 4.4% reading.
Meanwhile, the Office for National Statistics reported an Employment Change of 19,000 for the three months to May, indicating an increase in the number of employed persons. The previous reading had shown a decrease of 140,000.
On Wednesday, the final UK Consumer Price Index (CPI) inflation figures met expectations, but a larger-than-anticipated decline in UK Producer Price Index (PPI) inflation briefly put pressure on the British Pound.
Traders anticipate the release of the UK Retail Sales data on Friday. Expectations are for a 0.4% month-over-month decline in June, following the previous month’s 2.9% increase. Despite this, Retail Sales are forecasted to rise by 0.2%, compared to the prior 1.3% increase.
