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FOREX: EUR/GBP Drifts Further Off Highs as BoE/ECB Gap Widens

FOREX
  • EUR/GBP's drift off the August recovery continues, with the cross fading another 30 pips this morning on the better-than-expected UK unemployment rate data for June. The rate unexpectedly slipped from 4.4% to 4.2%, against expectations for a 0.1ppts rise, prompting EUR/GBP to make a clean break of the 200-dma support and exposure lower levels.
  • 0.8411 undercuts as support here, and while the 0.8383 bear trigger is still some way off, market focus remains on the ECB-BoE pricing differential for their respective September meetings. An ECB cut remains fully priced while a similar move from the BoE sits at ~35%. A solid inflation print from the UK tomorrow could open this gap, reduce September MPC pricing, and work in favour of a revisit to recent lows.
  • JPY is the poorest peformer in G10 as the corrective bounce in USD/JPY off the pullback low persists. Stronger equities across Europe and the US so far are weighing on funding currencies and haven FX, pressuring both CHF and JPY to the bottom of the G10 pile. 
  • US inflation takes focus for the duration of the Tuesday session. PPI numbers are expected to show 0.2% reads across all PPI indices - and any hotter-than-expected read will pressure Sept Fed pricing and lessen the odds of a 50bps cut step next month. The USD Index is rangebound, with technical parameters intact at last week's hi/lo. Fed's Bostic is set to speak on the US economy at 1815BST/1315ET - the only CB speaker of note today.
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