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Euro at risk for major drop

Euro at risk for major drop

The Consumer price inflation(CPI) in the UK fell to 3.0% in April, down from 3.5% in the previous month. Although this was only marginally faster than the markets had anticipated (consensus 3.1%), this will come as relief to the BOE following last month’s rise in inflation. It is also of symbolic importance that Sir Mervyn King will not need to write a letter to explain why inflation is above 3.0% for the first time in more than two years. The question now is how quickly inflation continues to fall. This latest release form CPI suggests that the BoE may be more comfortable with extending QE later this year.

Positive news from US, as existing home sales rose 3.4% fro April to an annual rate of 4.62m, matching consensus expectations. The pace of sales has now exceeded 4.6m in three out of the first four months of 2012 although the relative over supply of homes for sale suggests little room for further improvement in the coming months.

After the comments from ex-Greek PM Papademos that the risk of Greece leaving the euro was real has affected euro sentiments. EUR/USD slipped below $1.27 while GBP/USD traded a cent lower around the $1.5735 level. The markets are likely to be highly uncertain today ahead of this evening’s Eurozone summit.

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