EUR/GBP exhibits volatility contraction ahead of Eurozone Inflation

• EUR/GBP stays sideways near 0.8500 as investors await the Eurozone Inflation data.
• The Eurozone inflation data will influence the ECB’s rate-cut path beyond June.
• Exit polls for UK elections suggest that the Labour Party will come into power.

The EUR/GBP pair trades inside Wednesday’s trading range in Thursday’s session, reflecting indecisiveness among market participants ahead of the release of the preliminary Eurozone inflation data for May, which will be published on Friday.

Investors remain certain about the European Central Bank (ECB) to begin reducing interest rates from the June meeting. Therefore, financial markets are discussing about how fast and far the ECB will cut interest rates beyond June. Majority of ECB policymakers have advocated for a gradual rate-cut approach to limit risks of inflation revamping again.

For fresh guidance on the interest rate outlook, investors await the Eurozone inflation data. Economists expect that annual Harmonized Index of Consumer Prices (HICP) rose at a stronger pace of 2.5% from the prior reading of 2.4%. The annual core HICP is estimated to have accelerated to 2.8% from 2.7% in April.

Hotter-than-expected inflation data would weaken speculation for the ECB deploying an aggressive policy easing approach. While soft numbers would prompt expectations that the ECB will announce subsequent rate cuts.

This week, investors have shifted focus to the United Kingdom (UK) election campaigns due to the absence of top-tier economic data. Exit polls show that the Labour Party will come in power after almost 15 years. The Pound Sterling could remain slightly volatile due to market expectations for elections but its impact on the monetary policy is expected to light.

The outlook of UK economy will change drastically if the Labour Party comes into power but their fiscal plans are expected to remain conservative to avoid any upside risk to price pressures.