GBP Faces Inflation Concerns, USD and EUR Show Mixed Signals.

GBP: The British pound didn’t find support from Bank of England (BoE) Governor Andrew Bailey, who echoed the sentiments of BoE Chief Economist Huw Pill about an anticipated sharp drop in inflation, similar to the Euro area. However, Bailey maintained a ‘higher for longer’ stance, forecasting around 2% inflation in two years. As a result, money markets have adjusted dovishly, with no further rate hikes and an increased cumulative interest rate cut projection of 65bps by December 2024, up from 50bps just a week ago.

BoE Governor Bailey:*”It’s too early to talk about rate cuts. The message is that policy needs to remain restrictive for an extended period, despite some upside risks. We consider policy to be restrictive, and economic growth remains subdued.”

USD: EUR/USD retreated in recent days after failing to surpass Fibonacci resistance at 1.0765. However, the pair has stabilized around 1.0700, indicating reduced selling pressure. If the rebound continues, the initial resistance is at 1.0765, with further targets at 1.0840. On the downside, support is found between 1.0695 and 1.0670. A breach of this key level could lead to a retest of this year’s lows at 1.0450, with a continued downturn focusing on 1.0355.

EUR: The euro retraced recent gains post-NFP, with certain US central bank officials adopting a more hawkish stance than their European Central Bank (ECB) counterparts. Fed officials emphasized the resilience of the US economy and the potential need for additional interest rate hikes. The ECB spoke in dovish undertones, which weighed negatively on the euro. Declines in German inflation, a crucial gauge for the broader inflationary landscape in the euro area, also contributed to the euro’s retreat. Euro area retail sales are expected to decrease, adding to the euro’s challenges.

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