Eurozone Inflation Touched Record Highs (EUR/USD, EUR/GBP), RBA Interest Rate Decision Due On Tuesday (GBP/AUD)

Summary:

• Eurostat stated that prices rose by a record 10.7% in October.
• Uncertainty around BoE interest rate decision.
• RBA raised interest rates by 25 basis points, and the market is expecting a similar action on November 1.

ECB under pressure to raise interest rates further

The market is reflecting bearish signals for this currency pair. Eurostat stated that prices rose by a record 10.7% in October, setting a new record for inflation in the Eurozone. Separate figures also revealed that the bloc's economy expanded more quickly than anticipated in the third quarter. The European Central Bank (ECB) is under more pressure to raise interest rates as the inflation data was higher than the market's expectation of 10.3%, despite predictions from some economists that the ECB will soon slow the rate at which it does so. With the energy component of fuel costs rising by an alarming 41.9% year-over-year, rising fuel prices continue to be the main source of inflationary pressures.

The EUR/USD is still in a significant macrodowntrend, and even while this picture might not change much in the short term, there may yet be some upside before selling resumes. The euro broke out of a channel it had been trapped in since the beginning of the year last week.

✕ EUR/USD Price Chart

Markets awaiting BoE interest rate decision

The market is reflecting mixed market signals for this currency pair. Due to the uncertainty surrounding the Bank of England's decision on Thursday and the possibility that the BoE will raise interest rates less than markets anticipate, the Pound to Euro exchange rate has continued its recovery from September's lows to reach two-month highs in recent trade. However, this week's gains may be vulnerable to profit-taking. The U.S. dollar weakened last week, which benefitted riskier currencies, and financial markets cheered the appointment of former chancellor Rishi Sunak as prime minister.

However, market focus soon shifted to Thursday's interest rate decision and the release of October inflation data from the Eurozone on Monday. Economists and the financial markets anticipate that the BoE will increase the Bank Rate by three quarters of a percentage point to 3%. If delivered, this would be the biggest interest rate increase the BoE has ever made, however it may not be as certain or as done as many people think.

✕ EUR/GBP Price Chart

RBA expected to remain dovish

On Tuesday, the Reserve Bank of Australia is expected to increase interest rates once more, but the size of the increase is uncertain, with potential consequences for the Australian Dollar. On October 4, the RBA raised interest rates by 25 basis points, and the market is expecting a similar action on November 1. However, as inflation picks up speed, the central bank may be compelled to make a U-turn

According to the ABS, Australian CPI increased 7.3% in the twelve months leading up to the September 2022 quarter. The announcement occurred just a few days after the Reserve Bank of Australia stunned the markets by raising interest rates by 25 basis points; the Australian Dollar fell as a result.

✕ GBP/AUD Price Chart

Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com