The Euro (EUR) continued to consolidate losses against the British Pound (GBP) on Tuesday, remaining capped below 0.8650, despite the release of higher-than-expected Eurozone inflation figures. According to preliminary data from Eurostat, the Eurozone Harmonised Index of Consumer Prices (HICP) accelerated to a 3.2% year-on-year growth in May, up from 3.0% in April, matching market expectations. Core HICP reached a one-year high of 2.5% year-on-year in May, rising from 2.2% in April and surpassing market expectations of a 2.4% increase [1].
The inflation data highlights the ongoing impact of the energy shock related to Iran’s war, with core inflation indicating that price pressures are spreading throughout the broader economy. This has increased pressure on households and businesses. Despite these figures, the Euro failed to gain significant support, as the market consensus remains that the European Central Bank (ECB) will proceed with a 25-basis-point rate hike at its monetary policy meeting next week [1].
Meanwhile, the British Pound showed some resilience, supported by political stability after Prime Minister Keir Starmer resisted calls to resign following poor results in May's local elections. This development has eased concerns about a potential power vacuum in the UK government. On the economic front, UK Consumer Credit eased to GBP 1.86 billion in April from a revised GBP 1.90 billion in March, while Mortgage approvals increased to 65.94K from 63.97K, defying expectations of a decline. Net Lending to Individuals fell to GBP 6.2 billion in April from GBP 8.7 billion in March, though these figures had little immediate impact on the Pound [1].
Overall, the market reaction to the inflation data and UK credit figures was muted, with the Euro remaining under pressure and the Pound showing relative strength amid political stability.
CONCLUSION
Despite higher Eurozone inflation, the Euro remained weak against the Pound, as markets anticipate an ECB rate hike next week. The British Pound benefited from political stability and resilient mortgage data, while overall market reactions to the economic releases were limited.