The pound started gaining against the eurodollar in the European session yesterday following the report of near three-year high consumer price inflation in June. The eurodollar sell-off intensified with the report of a worse-than-anticipated decline in the Eurozone industrial production in May. Overall, the EUR/GBP duo weakened from 0.8565 to 0.8520 in the past 24 hours.
The ONS (Office for National Statistics) stated that the UK’s consumer price index (CPI) increased 2.4% y-o-y in June, following an uptrend of 2.1% in the prior month and greater than the 2.2% growth anticipated by economists. On a m-o-m basis, CPI increased 0.4% in June.
Excluding volatile items such as food and energy, core CPI increased 2.3% y-o-y in June, from 2% in May. Economists did not anticipate any change in the core CPI figure reported for May.
The consumer price index, including owner occupiers’ housing costs, improved 2.4% y-o-y in June 2021, an upsurge from 2.1% in the year ending May. With a contribution of 0.80%, the transport sector topped the list of contributors to the CPIH. On a m-o-m basis, CPIH increased 0.4% in June.
In a separate news release, the ONS stated that PPI (producer price index) input price fell by 0.1% m-o-m in June, following an increase of 1.20% in the earlier month. The reported figure missed the 1.10% growth expected by analysts.
On a y-o-y basis, the PPI input prices grew by 9.1% in June 2021, a drop from 10.4% in May 2021. On a y-o-y basis, metals and non-metallic minerals contributed 3.98% to the annual input inflation rate.
The ONS also stated that PPI output prices increased 0.4% m-o-m in June, a decrease from the 0.8% rise in May, and missed the 0.6% growth anticipated by economists.
On a y-o-y basis, the PPI output prices posted an increase of 4.3% in June 2021, a notch lower than the 4.4% rise reported in May 2021. Notably, the reported figure represents the first slowdown in the yearly growth of inflation since May 2020. The most significant positive contribution of 1.41% to the annual figure was provided by transport equipment.
In the European session, data published by Eurostat stated that industrial production in the Eurozone fell by 1% m-o-m in May, following an increase of 0.6% in the prior month, but slightly better than the 0.3% drop anticipated by economists. On a y-o-y basis, industrial production rose by 20.5% in May 2021.
Production of non-durable consumer goods declined 2.30% m-o-m in May. Likewise, energy and capital goods recorded a decrease of 1.90% and 1.60%, respectively. On the contrary, the production of durable consumer goods increased by 1.60%.
On a y-o-y basis, the production of durable consumer goods increased 37.60% in May. Also, capital goods posted a growth of 27.60%, while intermediate goods rose by 24.10%. Even non-durable consumer goods and energy increased by 9.70% and 7.10%, respectively.
The strong inflation data from the UK and the weak industrial production data from the Eurozone are expected to keep the EUR/GBP pair range-bound with a slight bearish bias in the short term.
The historical price chart shows that the EUR/GBP currency pair is dropping after breaking the support at 0.8565. The next support is expected only near 0.8470. Additionally, the pair is trading beneath its 50-day moving average, while the stochastic indicator is in the bearish zone.
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