GBP/USD drops below $1.20 on US inflation data
Philip McHugh February 27th 2023 - 2 minute read
The US dollar rallied on Friday as markets reacted to a stronger-than-expected US inflation release.
Meanwhile the pound opens this week on firm footing, with GBP/EUR stable at €1.1333 and GBP/USD buoyed at $1.1967. GBP/CAD is steady at CA$1.6262, while GBP/AUD and GBP/NZD tick up to AU$1.7790 and NZ$1.9422, respectively.
Coming up, will another improvement in Eurozone economic sentiment help to support the euro this morning?
What’s been happening?
The US dollar closed last week on strong footing. The safe-haven currency initially appreciated as a risk-off mod prevailed.
USD demand then grew more pronounced following the publication of the latest core PCE price index.
The Federal Reserve’s preferred indicator for inflation reported a surprise increase in January. Signs US inflation may be stickier than previously hoped, strengthened Fed rate interest rate bets and lifted the US dollar.
The euro’s strong negative correlation with the US dollar left the single currency on the defensive on Friday.
Further suppressing EUR sentiment was Germany’s latest GDP figures as the final estimate for the fourth quarter reported a larger-than-expected contraction of growth.
The pound, meanwhile, traded without any strong directional bias at the end of last week, in the absence of any notable UK economic releases.
What’s coming up?
Turning to the start of this week’s session, the publication of the Eurozone’s latest economic sentiment index will be in the spotlight this morning.
Economists forecast February’s figures will report another improvement in sentiment and that the index may have climbed above the long-term average for the first time since June. A more sanguine outlook for the Eurozone economy could provide some respite for the euro, following last week’s bruising.
For USD investors the publication of the latest US durable goods orders release is likely to be the primary focus.
An expected contraction in order growth last month could reflect poorly on the US dollar and curtail its recent bullish run.
Meanwhile, in the continued absence of any notable UK economic data, movement in the pound may prove limited again today.
Written by
Philip McHugh