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Pound finds fleeting gains as UK inflation surges

currency-newsPound finds fleeting gains as UK inflation surges
Trade in the Pound was mixed yesterday, after data showed that UK inflation soared to a new 40-year high in July.

Sterling is on the back foot this morning, with GBP/EUR subdued at €1.1823 and GBP/USD retreating to $1.2004. GBP/CAD is muted at C$1.5540, while GBP/AUD and GBP/NZD are holding steady at AU$1.7386 and NZ$1.9207, respectively.

Looking ahead, could an unexpected result in today’s Eurozone inflation release stoke volatility in the euro this morning?


What’s been happening?

The pound initially rallied on Wednesday, following the publication of the UK’s consumer price index.

July’s CPI figures reported domestic inflation rocketed from 9.4% to 10.1%, smashing forecasts of a more modest rise of 9.8% and bolstering expectations the Bank of England (BoE) will opt for a 50bps rate hike at its September meeting.

However, Sterling was unable to sustain these gains against the euro and US dollar through the afternoon amid cost-of-living jitters.

The US dollar, meanwhile, was underpinned through the European trading session amid a prevailing risk-off mood, which helped to offset a weaker-than-expected US retail sales print.

The publication of the minutes from the Federal Reserve’s latest policy meeting then exerted some pressure on the ‘greenback’ later in the evening as they proved more dovish than expected.

At the same time, the euro was able to trade with modest gains yesterday, despite the latest Eurozone GDP estimate seeing growth in the second quarter revised down from 0.7% to 0.6%.


What’s coming up?

Looking ahead, the most notable data release today will be the publication of the Eurozone’s latest inflation figures.

July’s finalised figures are expected to confirm inflation climbed to a record high of 8.9%. Any divergence from the preliminary release could inspire some volatility in the euro.

Across the pond, the US will release its latest initial jobless claims figures later this afternoon. This could place some pressure on USD exchange rates if it reports that new unemployment claims continued to rise in the second week of August.

However any losses for the US dollar could easily be offset if the market mood remains broadly downbeat, underpinning demand for the safe-haven currency.

Meanwhile, in the absence of any impactful UK data today, the pound may struggle to find any strong directional bias.
Philip McHugh

Philip McHugh

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)

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