Euro slips on softer-than-expected inflation print

The euro fell back on Wednesday as the Eurozone’s latest inflation figures printed below forecast.

Meanwhile, the pound is mostly muted so far this morning, with GBP/EUR flat at €1.1512 and GBP/USD subdued at $1.2466. GBP/CAD rangebound at CA$1.6789, while GBP/AUD holds steady at AU$1.8770 and GBP/NZD retreats to NZ$1.9927.

Coming up, could a hawkish speech from European Central Bank (ECB) President Christine Lagarde help to bolster the euro this morning?

What’s been happening?

The euro stumbled in mid-week trade, following the publication of the Eurozone’s latest consumer price index.

April’s finalised CPI release saw annual inflation remain unchanged at 7%, but the month-on-month figures were revised down from 0.7% to 0.6%.

The cooler-than-expected inflation figures likely weakened European Central Bank (ECB) interest rate expectations and made the euro less appealing to investors.

Adding to the pressure on euro was its negative correlation with the US dollar. USD exchange rates trended broadly higher on Wednesday amid a prevailing risk-off mood.

This appeared linked to ongoing talks regarding the US debt ceiling, with investors pessimistic of the chances of a breakthrough being found in the near-term.

At the same time, the pound strengthened on the back of comments from Bank of England (BoE) Governor Andrew Bailey.

Bailey suggested recent signs point to continued constraints in the labour market, which could see the BoE tightening monetary policy even further.

What’s coming up?

Looking ahead, the primary focus this morning is likely to be on a speech by ECB President Christine Lagarde.

Lagarde struck a notably hawkish tone in the wake of the ECB’s latest policy meeting, suggesting the bank has ‘more ground to cover’ in tackling inflation.

If her remarks reiterate this then it may revive ECB rate hike bets and lift the euro.

On the other side of the Atlantic, the US will publish its latest initial jobless claims this afternoon. Last week’s figures are expected to report a drop in unemployment claims. Could signs of a stronger US labour market strengthen Fed rate expectations and lift the US dollar?

Finally, in the absence of any notable GBP data, the pound may struggle to find momentum today.