Record breaking inflation


To kick off trading today, a highly anticipated report on the UK’s inflation was made available for all to see. In this report, Inflation was reported at an eyewatering 9%, its highest level in 40 years. For many this has been a very worrying announcement, showing that the current cost of living crisis is going to stay around for quite some time. This also disappointed investors, with the headline figure of 9% failing to reach the market consensus of 9.1%. This disappointment has clearly been felt in the rate, with it printing immediate losses against the Dollar, stripping away a large chunk of the gains sighted yesterday. As inflation is now sitting at this record-breaking level, the recent softening of the BoE’s interest rate hike approach may spell trouble for the Pound. Currently, the downside for the Pound is however being partially limited by the upbeat employment figures we saw released yesterday. As for the Dollar, it has also struggled recently as overall market sentiment has been particularly volatile making for some difficult trading. On the other hand, markets are now looking at the Fed adopting a more hawkish approach to interest rate hikes. The prospect of this will likely give the Dollar some renewed support and make it increasingly difficult for the Pound to climb against it.


Looking back over the course of this last week of trading, the rate has managed to climb up from its slump, back up to monthly highs. However, this has since been cut short with the publication of the UK’s latest inflationary figures. Although data showed an inflationary level of a shockingly high 9%, a 40-year high, it failed to meet the consensus of 9.1%. The immediate knee-jerk reaction was not a great one for the Pound, with it falling sharply against the Euro. With the UK economy recently under question and fears arising of a recession, this may cause additional pressure for the Pound. As for the Euro, it has found some support lately after a comment from an ECB member sparked hopes of interest rate hikes, something they have previously been reluctant to do so. Governing Council member of the ECB Klaas Knot stated that he believes the ECB should raise rates in July. This has given the Euro some additional strength and exacerbated the losses seen by the Pound. As for economic data for the rest of the day, the UK has released the bulk of its scheduled reports. The Euro Zone on the other hand is due to release data on their Core Inflation Rate shortly, crucial to the ECB’s interest rate decision.

Morning Update Published by Frank Brightman (18/05/2022)

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