GBP/USD
Early yesterday morning, the Pounds upwards momentum hit a roadblock following the release of fresh inflationary figures. In this, the headline inflationary figure came in at a 40-year high of 9%, however, this did fall short of the consensus of 9.1%. In doing so investors were clearly somewhat disappointed and the Pound felt this as it began to tumble quite sharply, surrendering its gains. With inflation now sitting at this eyewatering level, the Bank of England still see some wiggle room and expect it to hit double digits. With the outlook for the UK economy being quite sour and with the BoE predicting a recession, it may be the case that the Pounds potential gains are capped for some time. So far in trading today, the Pound still finds itself under pressure, showing slight losses against the Dollar. As for the Dollar, it is still supported by the markets hawkish expectations for their Federal Reserve in relation to interest rate hikes. It is clear that the Fed’s main focus at this time is trying to get inflation under control in the US economy, something that the markets appreciate. Looking at the economic calendar, it is a quiet day for both sides of the table in terms of important data. It is likely that the currency pairs trading today will largely focus on overall market sentiment.
GBP/EUR
Up until recently the Pound managed to initiate a 5-day consecutive climb against the Euro, propelling the rate back up to monthly highs. However, this was cut short yesterday as the Pound struggled to sustain its gains following the inflationary data that arose more concern for the UK economy. The inflationary data showed a level of 9%, the highest rate seen in over 40 years. Experts have attributed this to an array of different events, most notably the war in Ukraine and soaring energy prices. Taking all of this into account, it is likely that the Pound will struggle to make any significant gains against the Euro as upwards movement will be met with fierce headwinds. Looking at the Euro, recent data shows that their inflation rate sits at 7.4%, well above the ECB’s target of 2%. With this in mind, the markets are now beginning to price in rate hikes by the ECB, giving the Euro some support. However, the Euro may find itself with some limitations due to the previous dovishness of the Bank when raising interest rates. Later on, today, the ECB are set to have a meeting which may provide additional support for the Euro.
Morning Update published by Frank Brightman (19/05/2022)