Pound (GBP) Slumps on Inflation Concerns
The Pound (GBP) found itself on the defensive yesterday, following the publication of the UK’s latest consumer price index.
While inflation jumped to a four-month high of 1% in July, analysts suggested this bump is likely to be short-lived. This weighed on GBP exchange rates amid concerns weak inflation could pressure the Bank of England (BoE) into considering negative interest rates.
At the same time, this caused the Pound to US Dollar exchange rate to drop as GBP/USD returned to the start of the week’s levels.
Turning to the second half of the week, GBP investors will be keeping a close eye on Brexit developments, with any negative headlines coming from this week’s negotiations likely to drive Sterling even lower.
Euro (EUR) Sinks as Inflation Revised Lower
The Euro (EUR) fell back on Wednesday as the Eurozone’s final CPI reading for July was revised lower, with the bloc slipping deeper into a state of deflation than previously thought.
On top of this, a strong uptick in the US Dollar drove the Euro lower due to the negative correlation between EUR/USD.
Meanwhile, the rising number of Covid-19 cases across Europe is weighing on the Pound to Euro exchange rate. Spain recorded its highest number of cases in a day since June, while Germany reached levels last seen in late April, leaving GBP/EUR flat.
Coming up today, the spotlight is likely to be on the publication of the minutes from the European Central Bank’s (ECB) July policy meeting. Will an optimistic outlook from the ECB help to buoy the Euro today?
US Dollar (USD) Skyrockets in Skittish Trade
The US Dollar (USD) rocketed higher on Wednesday, recouping its losses from the first half of the week as skittish investors flocked to the safe-haven currency.
This came in response to the minutes from the Federal Reserve’s most recent policy meeting, with investors alarmed by the Fed’s concerns over the ‘elevated uncertainty’ of the coronavirus pandemic’s impact on the US economy.
This loss of risk appetite caused the US Dollar to rise against the Pound and Euro, returning USD/GBP and USD/EUR exchange rates near to the week’s opening levels.
Looking ahead, the focus for USD investors today looks to be on last week’s initial jobless claims, with the US Dollar potentially firming if a print under one million bolsters hopes for the economic recovery in the US.
Canadian Dollar (CAD) Subdued as Inflation Misses
The Canadian Dollar (CAD) was mostly rangebound on Wednesday as Canada’s CPI figures printed below expectations in July with a rise of 0.1% against forecast for a more robust 0.5% expansion.
Australian Dollar (AUD) Plunges on Global Growth Concerns
The Australian Dollar (AUD) retreated overnight on Wednesday, with investors shunning the risk-sensitive ‘Aussie’ amid renewed concerns over the global economic recovery.
New Zealand Dollar (NZD) Sinks in Risk-Off Trade
The New Zealand Dollar (NZD) also tumbled in overnight trade as fears that the global recovery will not be as swift as first hoped dragged on the currency.