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Pound slumps on inflation concerns

currency-newsPound slumps on inflation concerns
The pound ticked higher on Tuesday in response to comments from a Bank of England (BoE) policymaker regarding the need for future interest rate hikes.

Sterling is on the back foot this morning, with GBP/EUR slipping to €1.1603 and GBP/USD tumbling to $1.2180. GBP/CAD has retreated to C$1.5803, while GBP/AUD and GBP/NZD hold steady at AU$1.7643 and NZ$1.9445, respectively.

The spotlight today is likely to be on the UK’s latest CPI print as another uptick in inflation feeds into cost of living concerns.

What’s been happening?

The pound firmed on Tuesday, finding support on the back of the comments from Bank of England Chief Economist Hue Pill in which he suggested the bank will need to continue to tighten monetary policy in order to tackle inflation.

These gains were then trimmed later in the session following the release of the Confederation of British Industry’s industrial trends orders index. The latest index reported a slowing of manufacturing production in June.

The US dollar, meanwhile, was placed on the defensive yesterday as risk-on flows dented demand for the safe-haven currency. Although these losses were capped by an uptick in US Treasury yields.

The drop in the US dollar helped to buoy the euro yesterday, thanks to the negative correlation between the pairing, with the single currency also being underpinned by European Central Bank (ECB) rate hike speculation.

What’s coming up?

Kicking off today’s session was the publication of the UK’s consumer price index, which reported UK inflation climbed from 9% to a new 40-year high of 9.1% in May.

The latest jump in domestic inflation has reignited concerns over the UK’s cost of living crisis and has seen the pound slump this morning.

Meanwhile, comments from ECB Vice-President Luis de Guindos may dent the euro today after he warned that fragmentation is a significant worry for the bank.

Across the pond, the start of Federal Reserve Chair Jerome Powell’s two-day testimony in front of Congress will be in the spotlight. Powell is likely to be grilled on inflation, with the US dollar potentially strengthening if he reiterates the bank’s commitment to return inflation to its 2% target.
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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