GBP/EUR at landmark levels, but fresh trials and tribulations ahead

Pound settles above €1.16

The Pound reached new six-month highs against the Euro?this week, but with fresh obstacles looming overhead on the charts as economic risks gather on the horizon, the balance of risk might be in the process of shifting toward the downside.?Sterling climbed above €1.16 against the Euro for the first time since December this week as the single currency came under pressure amid signs of a deepening slowdown among Asia Pacific economies and following reports suggesting European inflation may be dissipating faster than expected.?UK inflation fell from 10.1% to 8.7% last month but the more important core inflation rate rose from 6.3% to 6.8% owing to developments at the domestic level and particularly those in the services economy, leading financial markets to bet on Bank Rate being raised to 5.5% later this year.?The implied expectation is an immediate headwind for an already-slowing economy, given that mortgage rates are set using overnight-index-swap rates and not the actual Bank Rate, which means mortgage borrowers can now expect to be charged something like 5.5% when renewing fixed-rate mortgages.

Soft German inflation and strong US data weigh on EUR/USD.

The Euro softened yesterday after?German CPI reading for May was 6.1% y/y, compared to the expected?6.5%. In the US, JOLTS job openings unexpectedly rose to 10.1m versus 9.38m expected. There is considerably more labour slack in Europe compared to the US and that may limit ECB hikes and lead to earlier cuts. Meanwhile, the US economy continues to hold up better than anticipated.?If that trend holds, the Euro will soon be challenging the January-March double bottom. A big factor in that will be the FOMC decision on June 14 and the US CPI report a day before.

Dollar skips to the Fed beat.

The dollar came off its highs overnight after a couple of Fed speakers suggested the bank could skip a hike at its June meeting. This strategy could buy the Fed a little more time. However, US data and the overnight release of the Fed Beige Book suggest the Dollar will hold gains as we head into tomorrow's jobs report. Look out for?Eurozone CPI?out at 10am?today.