- EUR/GBP Pares gains about 0.8435 at the Wednesday early European session.
- CPI inflation in Great Britain increased in April to 3.5%, more than expected.
- The ECB Knot said that a different rate in June cannot be ruled out.
Cross EUR/GBP attracts the last profits of nearly 0.8435 during the early European session on Wednesday. The edge of the Sterling pound (GBP) is slightly higher in relation to the euro (EUR) after the information of inflation of consumer price indicators in the UK (CPI) in April. Later on Wednesday, decision makers of the European Central Bank (EBC) are to speak, including Luis de Guindos, Phillip Lane, José Luis Escrivá.
Data published on Wednesday by the British National Statistics Office showed on Wednesday that the main CPI in the country increased by 3.5% in April, compared to 2.6% growth in March. This reading was warmer than expected 3.3%. The basic CPI, which excludes unstable prices of food and energy, increased in April by 3.8% compared to 3.4% earlier, above the market consensus in the amount of 3.6%.
Meanwhile, the monthly CPI inflation in Great Britain increased in April to 1.2% from 0.3% in March. Markets estimated 1.1% of reading. The Sterling pound attracts some buyers to an immediate response to the warmer than expected CPI inflationary data in Great Britain.
Traders are raising the plants that the ECB will reduce interest rates due to the growing fears related to the growth of the euro area. A member of the ECB Council, Klaas Knot, said that another rate reduction is possible next month, although he emphasized that making decisions is premature decisions without seeing fresh quarterly forecasts.
According to Reuters, the markets valued almost 90% of the possibilities of reducing the ECB rate, but according to Reuters they valued only one additional reduction in the rest of the year. This, in turn, can charge the euro against GBP in the near future.
Frequently asked inflation questions
Inflation measures the augment in the price of a representative basket of goods and services. Header inflation is usually expressed as a percentage change based on month to month (Mom) and year on year (Yoy). Basic inflation excludes more unstable elements such as food and fuel, which can change because of geopolitical and seasonal factors. Basic inflation is the number of economists focus on the level of central banks, which are authorized to maintain inflation at a management level, usually about 2%.
The consumer price indicator (CPI) measures the change in the prices of the basket of goods and services over time. This is usually expressed as a percentage change on the basis of month to month (Mom) and year on year (Yoy). Core CPI is a number directed by central banks because it excludes unstable food and fuel cartridges. When Core CPI increases above 2%, it usually causes higher interest rates and vice versa when it drops below 2%. Because higher interest rates are positive for currency, higher inflation usually causes a stronger currency. On the contrary, it is true when inflation falls.
Although this may seem contrary to intuition, high inflation in the country increases the value of its currency and vice versa for lower inflation. This is due to the fact that the central bank usually raises interest rates to combat higher inflation, which attracts more global influx of capital than investors looking for a lucrative place to park their money.
Earlier, gold was investors of assets, to which he turned to high inflation, because it retained its value, and although investors often buy gold for his sheltered real estate in times of extreme market riots, this is not the most of the time. This is because when inflation is high, central banks set interest rates to combat it. Higher interest rates are negative in the case of gold because they augment the costs of having gold in relation to assets on interest or place money on the cash deposit account. On the other hand, lower inflation is positive for gold because it lowers interest rates, thanks to which brilliant metal is a more profitable investment alternative.
