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Forex pairs in this Article » EUR/GBP (London) - EUR/GBP will be dominated this morning by Eurozone inflation data. It is expected that the numbers will show a modest but still worrying decline in headline inflation. EUR/GBP is currently trading at GBP0.8310.

ECB will maintain policy unless CPI declines accelerate

The report from Eurostat is expected to reveal a slight decline in the annual rate of headline inflation to 0.8 percent in December, from 0.8 percent the previous month. While the weak inflation data is cause for concern for European policymakers, it will likely leave policy unchanged at its meeting this week unless there is a sharper-than-expected slow down in price rises.

Yesterday’s German CPI figures showed a rise of 1.4 percent year-on-year in December, from 1.3 percent in November. German prices rose 0.4 percent month-on-month.

Harmonised European inflation numbers (HICP) for Germany decreased to 1.2 percent from 1.6 percent in November. German HICP dropped by 05 percent month-on month.

Even if CPI inflation comes in as expected, it will do little to ease European policymakers’ concerns about the problems facing the Eurozone. Figures released on Friday showed that the contraction in private loans within the Eurozone continues to gather pace, declining a further 2.3 percent in November, year-on-year. The freezing up of European credit comes despite moves by the European Central Bank to slash its main refinancing rate to 0.25 percent in an attempt to encourage lending.

With little coming from the UK side of the channel to move the GBP leg European inflation expectations will be the primary driver for the pair.

EUR sheds early session gains

EUR/GBP climbed from an opening of GBP0.8305 to GBP0.8314 before sliding to its current GBP0.8306, shedding all gains.
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