GBP/USD strikes one-month high as US inflation slows

The US dollar came under some pressure on Tuesday, in response to the latest US consumer price index.

Meanwhile, the pound is stable so far this morning, with GBP/EUR flat at €1.1708 and GBP/USD buoyed at $1.3828. GBP/CAD is rangebound at CA$1.7551, while GBP/AUD and GBP/NZD hold steady at AU$1.8881 and NZ$1.9487 respectively.

Looking ahead, will a record jump in UK inflation help to underpin Sterling through today’s session?

What’s been happening?

The US dollar dropped sharply against the majority of its peers yesterday, in a kneejerk reaction to the latest US CPI figures.

USD exchange rates initially plummeted as the CPI releases revealed that US inflation fell for the first time in ten months in August. Lending support to the Federal Reserve’s stance that the recent inflationary pressure in ‘transitory’, and providing the Fed with more room before it needs to start tapering.

While the ‘greenback’ was able to claw back some its initial losses as investors had time to digest the data, the US dollar ultimately closed the session lower.

This pullback in the US dollar helped prop up the euro on Tuesday, thanks to the negative correlation between the pairing, although in the absence of any notable EUR data releases, the single currency’s gains proved limited.

The pound, meanwhile, was able to appreciate yesterday on the back of the UK’s latest jobs report, after July saw the largest rise in employment in 18-months, which helped to ease concerns over slack in the UK labour market.

However, Sterling was unable to sustain these gains for longer, with GBP exchange rates retreating again overnight.

What’s coming up?

Kicking off today’s session was the publication of the UK’s own CPI release, which reported that domestic inflation accelerated to a record 3.2% last month.

This could help the pound to trend higher today as it is likely to stoke speculation that the Bank of England (BoE) could begin tightening its monetary policy in the near-term.

The focus for EUR investors today will be on the Eurozone’s latest industrial production figures, which could help to buoy the euro if they reflect the positive trend seen in the most recent German industrial data.

In contrast, the latest US industrial production release could send the US dollar lower this afternoon, as economists forecast US factory output will have slowed last month.