EURGBP, H1
Bund and Gilt yields dipped on the lower than expected U.K. inflation number, but quickly bounced back and even after a slump in the German ZEW remain up on the day and near session highs. EURGBP is currently in an indecision mode after the weak data round.
UK February inflation undershot expectations, with the headline CPI rate falling to 2.7% y/y from January’s 3.0% and core CPI ebbing to 2.4% y/y from 2.7% y/y previously. The respective median forecasts had been for 2.8% y/y and 2.5%. PPI input and output prices also came in below forecasts, at 3.4% y/y in the case of the former, down from 4.5% in the month prior, and 2.6% y/y, down from 2.8% previously. The biggest downward contributions came from falls in transport and food prices.
Meanwhile, in Eurozone side, German ZEW investor confidence deteriorated in March. The expectations index corrected much more than anticipated and fell to 5.1 in March, from 17.8 in the previous month, and with the March reading the lowest since September 2016. The current conditions indicator came in higher than anticipated, but was also down form February and overall the data confirms that investors are increasingly worried about escalating tensions over trade as well as the prospect of less accommodative central bank policies going forward, with the confirmation of a Brexit transition deal yesterday too late for the survey, but also unlikely to dampen concerns bout the risk of a global trade war.
Still, with central bank officials increasingly convinced that underlying inflation has turned a corner and that the output gap is closing, the weaker numbers are unlikely to prevent the ECB from phasing out QE and starting to to eye rate hikes next year. Bund yields, which briefly dipped on weaker than expected U.K. inflation before backing up again remained at the upper end of this morning’s trading range after the numbers and the 10-year is up 1.6 bp at 0.581%, still below yesterday’s highs of over 0.60%.
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Andria Pichidi
Market Analyst
HotForex
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