GBP/USD retreats to two-month low on lacklustre UK inflation

Philip McHugh March 25th 2021 - 2 minute read

The pound was on the defensive again on Wednesday in the wake of the UK’s underwhelming inflation figures.
 
Meanwhile, Sterling appears to have stabilised this morning, with GBP/EUR flat at €1.1588 and GBP/USD muted at $1.3685. GBP/CAD is rangebound at C$1.7200, while GBP/AUD and GBP/NZD hold steady at AU$1.8028 and NZ$1.9647, respectively.
 
Coming up, the latest EU summit of leaders will likely be the focus today, as leaders deliberate on whether to block vaccine exports.
 

What’s been happening?

The pound started poorly during yesterday’s trading session, with the currency retreating in response to the UK’s consumer price index after it revealed domestic inflation unexpectedly slowed from 0.7% to 0.4% in February.
 
The subsequent release of the UK’s latest PMI figures helped to temper these losses, however, as GBP investors welcomed a stronger-than-expected rebound in the UK’s vital service sector this month.
 
The euro also struggled to attract support yesterday as EUR investors grew increasingly worried by Europe’s coronavirus resurgence as data showed cases are rising across 19 EU countries.
 
However, the single currency’s losses were limited by the news that German would be reversing its recent lockdown announcement as well as by the publication of the Eurozone’s own PMI figures, which revealed the bloc’s private sector returned to growth this month.
 
The US dollar, meanwhile, continued to trend higher as a prevailing risk-off mood reinforced the currency’s safe-haven appeal, although these gains would be capped by data showing a disappointing slump in US durable goods orders last month.
 

What’s coming up?

Looking ahead, the latest EU summit of leaders will be in focus, scheduled to take place later this evening.
 
The meeting will be dominated by Europe’s recent rise in coronavirus cases and the ongoing issue over the EU’s slow vaccine rollout, and EUR investors will be looking for EU leaders to find ways to boost vaccine supplies.
 
The EU summit will also be watched closely by GBP investors to see whether EU leaders will back the European Commission’s proposals for tougher controls on vaccine exports, with the pound likely to suffer if there are any restrictions placed on exports to the UK.
 
Meanwhile, with the market mood still mostly downbeat, the US dollar is likely to maintain its upward trajectory through today’s session, unless last week’s initial jobless claims report another shock rise.

Written by
Philip McHugh

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