Pound stumbles after inflation data

The pound pushed higher against the euro and US dollar on Tuesday, but the currency has given up some of its gains following the release of the latest UK inflation data.

Sterling is edging lower across the board this morning, with GBP/EUR back down to €1.1173 and GBP/USD dipping to $1.2230. GBP/CAD is trading at C$1.7056, while GBP/AUD and GBP/NZD have fallen to AU$1.8716 and NZ$2.0081 respectively.

Over the rest of the day the biggest news items include Eurozone consumer confidence and the publication of minutes from the last Federal Reserve policy meeting.

What’s been happening?

The pound managed to advance yesterday despite a record high increase in the UK jobless claimant count.
 
The UK’s employment data also recorded a smaller-than-expected decline in the first quarter labour productivity index, and an unexpected decline in the overall unemployment rate. 
 
Meanwhile, the euro came under pressure following the release of mixed ZEW sentiment data.
 
Although the German economic sentiment index jumped from 28.2 to 51.0 in May – indicating a sharp increase in confidence – the current conditions measure registered a surprise decline on the month, falling from -91.5 to 93.5.
 
As markets remained in a more risk-positive mood demand for the US dollar was limited, with hopes surrounding a potential breakthrough in a Covid-19 vaccine pushing investors towards higher-risk assets.

What’s coming up?

This morning’s UK inflation data detailed a sharp fall in inflation in April. Core inflation slipped from 1.6% to 1.4% year-on-year, while non-core inflation dropped from 1.5% to 0.8%.

The slump in inflation will add to the argument in favour of the Bank of England (BoE) cutting interest rates below zero.

In other UK news, Rolls-Royce has announced 9000 job cuts as a result of the coronavirus crisis.

The euro could come under pressure this afternoon following the publication of the Eurozone’s consumer confidence index.

Economists have forecast that the gauge fell from -22.7 to -24.

Finally, USD investors will be focusing on the upcoming release of minutes from the Federal Open Market Committee’s (FOMC) last policy gathering and whether the central bank intends to take further action.