report released on Wednesday that suggested this week’s reaction in the Euro was overdone has done little to stop the single currency in its tracks. The currency rose back above the 1.14 level for the first time since April as many onlookers now think that the ECB will announce a tapering of its quantitative easing programme at one of its upcoming meetings. While we think this is entirely possible, we think the central bank would need to see a slightly more sustained rebound in inflation before it commits to a tightening in policy.

Regardless, it is clear that the Eurozone economy is recovering at a pace much faster than originally anticipated, with yesterday’s business sentiment data suggesting that this trend could continue. The monthly business climate index rose to an above forecast 1.15 from 0.9 while industrial confidence jumped to 4.5 from 2.8, much higher than the 2.9 consensus.

Attention will now be firmly on this morning’s June inflation release which is expected to show headline price growth slowed to 1.2% from 1.4%. Yesterday’s German data surprised to the upside with inflation increasing to 1.6% from 1.5%, suggesting that today’s numbers could follow suit.

Sterling breaks 1.30 on Bank of England rate hike hopes

A torrid week for the US Dollar has been compounded by a very solid few days for Sterling. The currency edged above the 1.30 level against the currency for the first time in a month on Thursday with investors becoming increasingly more convinced that a Bank of England rate hike could take place sooner rather than later.

Bank of England Chief Economist Andy Haldane continued to talk up the possibility of higher rates while speaking to the BBC yesterday. Haldane claimed the BoE needed to look seriously at the possibility of higher rates in order to keep a lid on cost of living increases.

US growth revision fails to halt Dollar slide

The US Dollar sank to a fresh nine month low on Thursday with investors almost completely overlooking the upwardly revised set of GDP numbers that showed the US economy performed much better than originally feared in the first quarter. Yesterday’s GDP data showed that the world’s largest economy grew 1.4% annualised compared to the 1.2% second estimate, primarily due to an upward revision in personal consumption growth.

We now await this afternoon’s PCE inflation index, the Federal Reserve’s preferred measure of US inflation, set for release at 13:30 UK time. Personal spending and income data could also shift the Dollar when released this afternoon.