Pound tumbles despite strong inflation print

Philip McHugh August 20th 2020 - 2 minute read

The pound retreated from a multi-month high on Wednesday after the UK’s latest inflation figures failed to inspire confidence in the UK economy.

Sterling remains on the back foot this morning as well, with GBP/EUR sliding to €1.1033 and GBP/USD dipping to $1.3077. GBP/CAD is subdued at C$1.7286, while GBP/AUD and GBP/NZD hold steady at AU$1.8219 and NZ$1.9948, respectively.

Coming up, the focus today looks to be on the minutes from the European Central Bank’s (ECB) most recent policy meeting. Could an optimistic outlook from the bank boost the euro later this afternoon?

What’s been happening?

The pound was back on the defensive yesterday, relinquishing a good portion of the gains made on Tuesday following the publication of the UK’s consumer price index.
The Office for National Statistics (ONS) reported that UK inflation unexpectedly jumped from 0.6% to a four-month high of 1% in July.

However, while GBP investors welcomed the surprise bump in inflation, it failed to translate into any gains for the pound, amidst warnings from analysts that the rise in inflation was unlikely to be sustainable. This potentially keeps pressure on the Bank of England (BoE) to consider implementing negative interest rates.

At the same time, the US dollar shot higher on Wednesday in response to the minutes from the Federal Reserve’s latest policy meeting as markets were spooked by the Fed’s dovish outlook on growth, bolstering the appeal of the safe-haven ‘Greenback’.

This surge in the US dollar drove the euro lower yesterday thanks to the negative correlation in the pairing, with the single currency also pressured after Eurozone inflation was revised lower in July’s final CPI reading.

What’s coming up?

Looking ahead, the highlight of today’s session looks to be on the minutes from the European Central Bank’s July policy meeting.

The release could help to buoy the euro today, if the ECB strikes a positive tone in its outlook for the Eurozone economy.

In the US, the publication of last week’s initial jobless claims looks likely to draw the focus of USD investors, with the US dollar potentially strengthening if the downtrend in unemployment claims continued.

Finally, GBP investors will be keeping an eye out for any Brexit headlines coming from the latest round of trade talks with the EU as the pound may come under fire if progress remains limited.
 

Written by
Philip McHugh

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