Forex Market: EUR/GBP trades close to three-month high ahead of UK inflation data

The euro traded little changed, but close to a three-month high against the British pound ahead of a report that may show UK inflation slowed to the weakest pace in more than four years in February.

EUR/GBP touched a session high at 0.8394 at 07:05 GMT, after which the pair trimmed losses to trade little changed at 0.8389 at 08:49 GMT, adding 0.01% for the day. Support was likely to be found at March 24th low, 0.8344, while resistance was to be met at March 18th high, 0.8400, also the pairs strongest since December 18th.

UK consumer prices rose 1.7% last month from a year earlier, according to the median estimate of economists in a Bloomberg News poll. The Office for National Statistics is scheduled to release its report at 09:30 GMT. If confirmed, the inflation rate will be the weakest since November 2009. Inflation, which stood at 1.9% in January, has slowed from 5.2% in September 2011.

Sterling’s demand continued to be pressured after the minutes of Bank of England’s March meeting on policy revealed last week that policy makers voted unanimously to keep their benchmark interest rate at a record-low 0.5%. On March 19th, after BoE’s minutes were released, the pound fell to a three-month low.

Meanwhile, the index of business climate in Germany probably dropped to 110.9 in March, according to the median estimate by analysts, from a reading of 111.3 during the preceding month. It is based on a survey, encompassing almost 7 000 companies operating in manufacturing, construction, retail and wholesale trade.

The IFO gauge of business climate represents an average of the index of expectations and the index of current assessment. Both indexes are equally-weighted. Values above 100.0 are indicative of a greater number of positive forecasts. The more readings distance from this key level, the stronger the confidence of the entities surveyed is. A higher than projected reading will provide a boost to euro’s demand.

The IFO gauge of expectations, reflecting economic expectations of German companies during the upcoming six months, probably slowed down to 107.7 during March from 108.3 in the preceding month.

The IFO gauge of current assessment for Germany, reflecting economic conditions at present, probably improved to 114.6 in March from 114.4 in February. The Ifo Institute for Economic Research is expected to release the official figures at 9:00 GMT.