UK core inflation printed at 3.4% y/y, higher than the 3.1% forecast. For the Euro, core came in at 2% y/y, less than the consensus of 2.1%.
There is also very different communication from each's central bank. At the monetary policy report hearing on Monday, BoE governor, Andrew Bailey, admitted to being "very uneasy' about inflation. Although the BoE did not raise rates at the last meeting, there were two dissensions to the vote.
The ECB has taken the approach to push back on calls for higher rates despite inflation. On Monday, President Lagarde warned European lawmakers that rate increases could disrupt the Europe's recovery.
Past performance is not an indicator of future results
These two different approaches reflect in the spread between German bunds and British gilts (top chart). The bottom chart shows the spread's effect on the EURGBP. Of note, there is a stong correlation between the two charts. The red negative sloped trendline shows the gilt adjusting to higher rates ahead. The lower chart show's the forex markets response; a significant EUR decline against GBP.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.