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Will stronger German inflation provoke hawkish response from ECB?

business-articlesWill stronger German inflation provoke hawkish response from ECB?
  • Subdued UK growth to pressure GBP?
  • Uptick in German inflation forecast
  • USD may be supported by PCE price index
UK GDP unlikely to provide support for GBP

The UK will publish its final GDP reading for the fourth quarter this morning, with economists forecasting that it will fall in line with the previous estimate.

This, they expect, will see the UK economy expand by 0.4% in the last three months of 2017, down from 0.5% in the third quarter and with annualised growth striking a five-year low of 1.4%.

While the lacklustre growth figures will have already been digested by investors, possibly limiting any potential losses for GBP, the gloomy data may leave the pound vulnerable to losses later in the session.

German inflation looks set to rise

Germany will publish its latest Consumer Price Index (CPI) this afternoon, and EUR investors are hopeful it may strengthen calls for the European Central Bank (ECB) to begin tightening monetary policy.

Markets expect today’s CPI figures to show inflation rallied to 1.7% in March; its highest levels since December.

This would see inflation make a marked recovery from the 15-month low of 1.4% struck in February, as it was hit by a sharp drop in volatile food and energy prices.

A solid jump in inflationary pressure in the Eurozone’s largest economy is likely to return the focus to the ECB’s current path for raising interest rates, with a possible acceleration of its timetable likely to propel the euro higher.

Fed awaits latest US price index

The US will also receive its latest inflation report this afternoon in the form of February’s Personal Consumption Expenditure (PCE) price index, the Federal Reserve’s preferred measure of inflation.

Economists forecast that the latest PCE index will show that US price growth continued to accelerate at a steady pace of 0.4% last month, matching the four-month high struck in January.

While the robust inflation reading is unlikely to prompt the Fed to re-evaluate its current plans for only two additional rate hikes in 2018, the data may still help to bolster the US dollar on speculation that it will improve the odds of a June hike.

Upcoming Data

Thursday, 29 March, 2018
09:30                     GBP Q4 GDP
13:00                     EUR Inflation Rate
13:30                     USD PCE Index
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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