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GBP/USD climbs to two-month high in response to US inflation print

Philip McHugh January 13th 2022 - 2 minute read

The US dollar stumbled on Wednesday as the latest US consumer price index spurred a modest selloff.

Meanwhile, trade in the pound is a little mixed so far this morning, with GBP/EUR flat at €1.1971 and GBP/USD buoyed at $1.3734. GBP/CAD is rangebound at C$1.7144, while GBP/AUD and GBP/NZD dip to AU$1.8795 and NZ$1.9976, respectively.

Coming up, will an increase in US jobless claims at the start of 2022 exert some additional pressure on the US dollar today?

What’s been happening?

The US dollar trended lower yesterday as US inflation printed in line with expectations, rising 7% in December.

The drop in USD exchange rates appeared to be down to some USD investors pricing in an above forecast inflation print, coupled with a bullish market mood which limited demand for the safe-haven currency.

This pullback in the US dollar helped to bolster the euro on Wednesday thanks to the strong negative correlation between the pair, with EUR exchange rates also benefitting from stronger-than-expected industrial production figures from the Eurozone.

Meanwhile, the pound continued to draw support from expectations the Bank of England will raise interest rates again when it next meets in February.

This helped to offset some weakness in Sterling stemming from political pressure against Boris Johnson as the latest headlines regarding another lockdown party at No 10 raised fresh questions over the Prime Minister’s future.

What’s coming up?

Turning to today’s session, the only economic release of note will be the publication of the latest US initial jobless claims later this afternoon.

Today’s figures are expected to report new claims fell in the first week of 2022, although another above forecast rise could place some pressure on the US dollar.

EUR investors will look to a series of speeches by members of the European Central Bank’s (ECB) governing council for fresh direction today. Will policymakers continue to dismiss concerns over a record surge of inflation in the Eurozone and weaken the euro in the process?

In the absence of any notable GBP data, Sterling sentiment may be primarily influenced by domestic headlines, with the political fallout from the No 10 lockdown party and Brexit uncertainty potentially weighing on the pound.

Written by
Philip McHugh

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