Euro bounces back on May inflation data, Pound reacts negatively to the latest polls

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1 June 2017

Written by
Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.

The Euro bounced back modestly as markets looked past weak Eurozone inflation data as the common currency continues to be well supported by foreign inflows looking to buy European stocks.

S
terling continues to trade off the latest election polls and market fears that the Conservatives may not be able to form a stable Government majority after the June 8th elections. The Pound retreated a bit further against the Euro, but stabilized against the Dollar as the Tories’ 10-point lead appeared to hold for now.

Not a lot in the way of major releases today. Currencies should stay on a holding pattern as we wait for the critical US payroll report on Friday.

Major currencies in detail

GBP

Sterling continues to trade completely in reaction to the latest election polls. It first dipped to a five-week low as YouGov posted a projection that had the Tories fall short of a Government majority. Other polls released later in the day had the Tories well ahead with a comfortable double digit lead and the Pound recovered.

While YouGov has consistently predicted a tighter race than other polls, some were questioning their methodology on the basis that it overestimates the turnout of young voters.

EUR

Eurozone inflation fell back sharply in May, down 0.5% to 1.4$ on the year. The key core inflation gauge, closely watched by the European Central Bank, also fell back a full 0.3% to 0.9%, unwinding all its gains of the past few months.

This is not a result the ECB will like, and it lowers the likelihood that there will be significant changes to the outlook at next week’s meeting.

The common currency however shrugged off these news and bounced back slightly as technical factors continue to drive thin trading ahead of Friday’s US job report.

USD

The Federal Reserve Beige Book report on the economy, compiled by the regional branches, continued to paint a picture of modest improvement in the absence of significant upward pricing pressure.

The Dollar put in a mixed performance but fell very slightly in trade weighted terms.

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