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Pound volatile as UK inflation jumps to 4-year high

currency-newsPound volatile as UK inflation jumps to 4-year high
The pound actually had a pretty good Tuesday, all things considered, with the British currency largely edging away from its recent lows.

GBP/EUR recovered from €1.1310 to €1.1403, GBP/USD climbed to $1.2792 from $1.2679, GBP/AUD hit a high of AU$1.6932, GBP/NZD trotted from NZ$1.7572 to NZ$1.7703 and GBP/CAD fluctuated between C$1.6824 and C$1.6914.  

Can the pound hold these gains? Keep scrolling to find out…

What’s been happening?

Yesterday’s UK CPI report revealed that inflation hit its highest levels since June 2013 in May, climbing to 2.9% instead of sticking at 2.7% as forecast.

Amit Kara of the National Institute of Economic and Social Research (NIESR) said; ‘We expect inflation to rise further over the course of this year and to reach a peak in the final quarter of 2017. This spike in inflation will exert further downward pressure on real household disposable income, at a time when wage growth remains modest and in turn squeeze consumer spending.’

Despite these concerns the pound was slightly supported by the data as it reduced the odds of the Bank of England (BoE) introducing any further monetary easing.

Elsewhere, the Canadian dollar drew support from hints that the Bank of Canada (BOC) is getting closer to increasing interest rates. BOC Governor Stephen Poloz implied that the rate cuts introduced two years ago have had the desired effect.

What’s coming up?

As data calendars go, today’s is pretty chock-a-block.

After this morning’s UK employment figures we’ve got Eurozone industrial production and employment numbers, with positive data for the currency bloc having the potential to give the euro a little lift.

This afternoon it’s all about the US, with domestic inflation, average earnings and retail sales reports all due out ahead of the Federal Reserve’s interest rate decision.

The rate of inflation and the pace of consumer spending are both believed to have eased in May, but these stats may have little impact on the US dollar in light of expectations that the Federal Reserve will increase interest rates.

A positive adjustment to borrowing costs has been expected for quite some time now so the announcement is unlikely to have a market-shattering impact on USD exchange rates.

The tone of the accompanying policy statement could be responsible for US dollar volatility however, with references to a further rate hike in 2017 potentially sending the North American currency higher across the board.

Of course, those of you with an interest in the pound will also be looking ahead to Thursday’s Bank of England (BoE) policy meeting.

If the BoE is more cautious than ever as a result of the latest political twists, GBP exchange rates could falter as the weekend approaches.  

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.
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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