GBP/USD strikes new ten-month high as US inflation cools

The US dollar tumbled on Wednesday in response to a weaker-than-expected US inflation print.

Meanwhile, trade in the pound is mixed this morning, with GBP/EUR flat at €1.1827 and GBP/USD subdued at $1.2779. GBP/CAD is stable at CA$1.7565, while GBP/AUD and GBP/NZD tick up to AU$1.9236 and NZ$2.0722, respectively.

Coming up, will a positive market response to the UK Labour party’s 2024 election manifesto lift Sterling today?

What’s been happening?

The US dollar tumbled during yesterday’s European trading session, following the publication of the latest US consumer price index.

USD exchange rates plunged as the CPI figures reported headline inflation unexpectedly cooled from 3.4% to 3.3% in May, with core inflation also decelerating more than forecast.

However, the US dollar then clawed back some of these losses later in the evening in response to a hawkish Federal Reserve interest rate decision. While the Fed kept rates on hold, its new interest rate projections pointed to fewer rate cuts over the next 12 months.

The pullback in USD helped to lift the euro on Wednesday as a result of the strong negative correlation between the pairing. Although the ongoing political uncertainty in France ultimately capped these gains.

The pound, meanwhile, softened against most of its peers excluding the US dollar yesterday, after the UK’s latest GDP figures reported economic growth stalled in April.

What’s coming up?

Turning to today’s session the spotlight is likely to be on the launch of the Labour party’s 2024 election manifesto.

As the expected government in waiting, GBP investors will be eager to get a proper look at the party’s plans for fiscal policy.

If they are well received by markets this could help to bolster the pound today. On the other hand, Sterling sentiment may falter if they are viewed as unrealistic or fiscally irresponsible.

For USD investors the focus today will be on the latest US producer price index. As producer prices generally filter through to consumers in the following months, an expected cooling of May’s PPI figures could weaken inflation expectations and drag on the US dollar.

In the meantime, the release of the Eurozone’s latest industrial production figures could act as a headwind this morning as economists forecast it will report factory output slowed in April.