German inflation on Wednesday will be followed by unemployment figures on Thursday.
EURGBP: Daily Chart
EURGBP is trading between two daily levels at 0.8585. The resistance is at 0.8662, with support around the 0.85 level for the next move.
German inflation fell slightly in August, according to data on Wednesday, but economists predict the downward trend to gain pace in the coming months.
Consumer prices, harmonised to compare with other EU nations, rose by 6.4% on the year this month, according to preliminary data from the federal statistics office. Analysts in a Reuters poll had forecast harmonised annual inflation of 6.3% after a reading of 6.5% in July.
The data from Germany will factor into the European Central Bank’s battle against inflation. The core inflation rate, without volatile items such as food and energy, was 5.5% in August, unchanged from July. There is still pressure on food prices in the country, with above-average growth and a 9.0% year-on-year increase. Energy prices were 8.3% higher over the last year, with government measures keeping prices contained last summer.
Thursday will bring unemployment data from Germany, which is expected to rise by 10,000 and add 0.1% to the unemployment rate in the country. That could weigh on the euro, and a dip in inflation also gives the pound some strength on lower rate expectations.
Thursday also brings core inflation, and Capital Economics’ chief Europe economist Andrew Kenningham said it may be higher than expected.
“As this is the last inflation print before the ECB’s September meeting, it could be enough to tip the balance in favour of a further 25 basis point rate hike, though it looks set to be a close call,” Kenningham said.
The ECB will meet on Sept. 14 to decide on the path for interest rates in the eurozone, with inflation still above the bank’s 2% target.
“As long as the ECB sticks to its current stance of putting more policy emphasis on actual data rather than expected data, a rate hike at the September meeting has become likelier,” ING analyst Carsten Brzeski said.
