GBP/EUR plunges to six-week low as UK inflation slows

The pound nosedived on Thursday, after Bank of England (BoE) interest rate expectations softened on the back of the UK’s latest inflation figures.

Sterling remains on the back foot so far this morning, with GBP/EUR slipping to €1.1515 and GBP/USD subdued at $1.2917. GBP/CAD has retreated to CA$1.6967, while GBP/AUD plunges to AU$1.8935 and GBP/NZD slumps to NZ$2.0566.

Looking ahead, will a rise in US jobless claims pull the US dollar lower this afternoon?

What’s been happening?

The pound plummeted through yesterday’s trading session, falling roughly 1% against both the euro and US dollar.

The GBP selloff was triggered by the publication of the UK’s consumer price index as June’s figures reported inflation decelerated at a faster-than-expected pace.

June’s weaker-than-forecast inflation figures prompted GBP investors to reprice their expectations for future interest rate hikes from the Bank of England. Markets now expect the BoE to deliver a 25bps rate hike in August and that UK interest rates will not peak above 6%.

The euro, meanwhile, was supported by the Eurozone’s own CPI release. An upwards revision to core inflation last month helped to boost European Central Bank (ECB) rate hike bets.

At the same time, the US dollar trended broadly higher as a downbeat mood saw nervous investors favour the safe-haven currency.

What’s coming up?

The most high-impact data release today is likely to be the latest US initial jobless claims.

Economists forecast new unemployment claims will have crept higher again last week. Fresh signs that the US labour market may be slowing could lead to a pullback in the US dollar, if this is seen as weakening the case for the Federal Reserve to continue tightening its monetary policy.

Also set for publication today is the Eurozone’s latest consumer confidence figures. Household morale is expected to have continued to improve this month, albeit only modestly. Will this be enough to bolster the euro?

Meanwhile, in the absence of any UK data of note, the pound may be left to lick its wounds as GBP investors continue to reprice their BoE rate hike expectations.