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- EUR/GBP trades choppy as traders assess Eurozone inflation and UK growth data.
- Rising energy costs push Eurozone inflation above target, adding pressure on the ECB.
- UK growth stays weak, limiting the scope for aggressive BoE tightening.
EUR/GBP trades in a choppy range on Tuesday, as traders digest the latest economic data from both the United Kingdom and the Eurozone. At the time of writing, the cross is trading around 0.8691, rebounding after marking an intraday low of 0.8676.
The latest Eurozone preliminary inflation data, the first since the escalation of tensions in the Middle East, showed early signs of the impact from rising energy prices, pushing inflation above the ECB’s 2% target.
Headline inflation showed a notable pickup, with the Harmonized Index of Consumer Prices (HICP) rising by 1.2% MoM in March, accelerating from 0.6% in February. On an annual basis, inflation rose to 2.5% from 1.9%, coming in below expectations of 2.7%.
Core inflation, however, remained more contained. The Core HICP rose 0.8% MoM, unchanged from the previous month, while the annual rate eased slightly to 2.3%, coming in below both the 2.4% forecast and the prior reading.
The data strengthen the case that the European Central Bank (ECB) could consider raising rates in the coming months if Oil prices remain elevated. However, markets are scaling back expectations of any immediate rate hike that had been priced in earlier, as rising energy costs are also fueling concerns about an economic slowdown, particularly in the Eurozone given its heavy reliance on imported energy.
EU Energy Commissioner Dan Jørgensen warned that member states should prepare for a prolonged disruption to energy markets due to the Iran war, according to a letter sent to EU energy ministers.
ECB policymaker Madis Müller said on Tuesday that “the ECB must act if energy prices stay high for a long period,” adding that a rate hike in April “cannot be ruled out.”
In the United Kingdom, growth remained modest. GDP rose 0.1% QoQ in Q4, in line with expectations and unchanged from the preliminary estimate. On a yearly basis, the economy grew 1%, also matching forecasts.
Meanwhile, traders expect the Bank of England (BoE) to consider rate hikes to deal with oil-driven inflation. However, weak growth in the UK, reflected in the latest Q4 GDP data, points to a stagflationary environment, complicating the central bank’s policy outlook.
