The pound fell sharply yesterday after the UK inflation rate jumped from 7% to 9% – its highest level since 1982.
Meanwhile, the pound opens today’s session on the back foot, with GBP/EUR muted at €1.1636 and GBP/USD subdued at $1.3772. GBP/CAD has edged lower to C$1.7252, while GBP/AUD and GBP/NZD are holding steady at AU$1.8531 and NZ$1.9836 respectively.
Looking ahead, will some underwhelming GDP figures from the UK leave Sterling to limp over the finishing line this week?
What’s been happening?The euro appreciated rapidly during on Thursday, after the ECB announced it would be adopting a symmetric 2% inflation target.
While the raising of its inflation ceiling was a dovish move, implying that interest rates would remain lower for longer, the move had been largely priced in ahead of time.
Instead, EUR investors choose to focus on comparisons to the Federal Reserve. ECB President Christine Lagarde’s rejected suggestions that the ECB would allow inflation to overrun for a period to compensate for past weakness, ultimately striking a more hawkish stance than the Fed.
At the same time, the US dollar continued to attract broad support yesterday, as a prevailing risk-adverse environment maintained ample safe-haven demand, which offset concerns over an unexpected rise in new US jobless claims last week.
The pound, meanwhile, found itself on the defensive throughout Thursday’s trading session, as a worrying surge in domestic coronavirus cases cast doubts over England’s 19 July reopening.
What’s coming up?Kicking off today’s session was the publication of the UK’s latest monthly GDP release.
The Office of National Statistics (ONS) reported the UK economy expanded by 0.8% In May, the fourth month of consecutive growth. However, this was below the 1.5% expansion forecast by economists and may leave the pound on the back foot today.
Across the Channel, the focus is likely to remain on the ECB as EUR investors continue to digest the bank’s new inflation mandate. Could this prompt a correction in the euro once the dust settles?
Meanwhile, the US dollar may extend its rally into today’s session, assuming the gloomy market mood continues to dictate trade.
07:00 GBP GDP (May)
07:00 GBP Industrial Production (May)
Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure
Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)