Early in the European session the euro and UK PMI’s are being released on Friday. This could present a good opportunity on the EURGBP pair if we see a divergence on the print between the two. The EURGBP has seen some falls this week already on increasing expectations that the BoE will need to be more aggressive to contain rising inflation.
Take a look at the EURGBP chart below.
On Tuesday UK wages grew above markets maximum expectations showing the dreaded prospect of a UK wage price spiral. Average weekly earnings – including bonuses in the UK – rose 5.9% which was above market forecasts of a 5.1% increase. Pay excluding bonuses grew by 6.6% which was above the forecast of 6.2%.
On Wednesday UK inflation data came in at 10.1% above the 9.8% economists were projecting. This will be a concern for the BoE who wanted to be doing better in their inflation battle.
Furthermore, the core remains ‘sticky’ at 6.2% coming in above market expectations and increasing expectations of a more hawkish BoE. Deutsche Bank now see two more rate hikes from the BoE before reaching a peak of 4.75% in the summer. This has been supporting the GBP this week.
So, the GBP has seen reasons for strength this week. Watch the UK PMI’s Early Friday. If they come in high then you would expect that to boost the GBP further. Before the UK PMI’s we have the European PMI’s and a miss across the board, starting with the French print at 0815 BST, should see the EURGBP pair fall. If the German PMI print comes in weaker at 0830BST too then the EURGBP should push lower ahead of the UK PMI’s at 0930. If there is a clear divergence here, with weak European PMI’s and strong UK PMI’s, then that should reasonable create a EURGBP sell bias for the rest of the European Friday morning session. One to watch today!