The euro enjoyed a three-week high, but reversed some of its gains on Friday after the upbeat release of the preliminary readings of UK Q2 GDP which came in better than expected on QoQ. The monthly GDP also rose for June. Dovish ECB concerns have also weighed on the euro.
Last week the euro strengthened due to rising German yields. The 10-year Bond yield stands at 2.54%, while the 2-year yield is at 3.17% and the 5-year yielding 2.59%, showing more than 1% increases. The European Central Bank (ECB) expectations remain steady, but markets continue to have low expectations for a September hike. It will all depend on the incoming data the bank receives.
The European Central Bank’s (ECB) monthly Economic Bulletin showed a highly uncertain outlook for the bloc’s economic growth and inflation, as well as deterioration in the near-term economic outlook. The latest Reuters poll about the European Central Bank (ECB) shows that a small majority is expecting a pause to the rate hiking cycle, while some economists expect another rate increase.
UK’s leading think tank National Institute of Economic and Social Research (NIESR) has indicated in its early week forecasts the prospect of higher rates and a hawkish Bank of England, which in turn has supported the GBP/EUR.
In terms of economic data, for the UK we note the following: on Tuesday we get employment data for June, on Wednesday, CPI rates for July and on Friday, retail sales rate for July. From the Eurozone, we note the ZEW economic sentiment figure for August due out on Tuesday. On Wednesday, we get the Eurozone’s revised GDP estimate for Q2 and industrial production rate for June. Finally, on Friday, we have the Eurozone’s final HICP rate for July.
Expected Volatility – Medium
Recent doubts about the ECB’s future rate hikes may push the cross-currency pair higher. The release of employment and inflation data from the UK will be closely watched.