Pound US Dollar Exchange Rate Weakens as UK Inflation Prints Below Expectations

Pound (GBP) Muted as Inflation Misses Expectations

The Pound struggled to attract support during yesterday’s trading session as GBP investors were left a little disappointed by the UK’s latest consumer price index (CPI).

Data published by the Office for National Statistics (ONS) on Wednesday revealed that domestic inflation accelerated from 0.4% to 0.7% last month, slightly below forecasts for a 0.8% rise and still well below the Bank of England’s (BoE) 2% target.

Looking ahead, in the absence of any notable UK data today, any upside in the Pound remains limited, particularly in the wake of Boris Johnson’s warning that the UK could face another wave of coronavirus cases in the winter.

Meanwhile, Sterling’s dip has continued at the start of today’s session, with the Pound US Dollar exchange rate struggling to hold $1.39, and GBP/EUR slipping.

The Pound may recover against the US Dollar and Euro tomorrow as forecasts suggest the UK services and manufacturing PMIs will show strong growth in business activity in April.

A strong reading at the start of the second quarter could improve the UK’s economic and growth outlooks going from spring into summer, and in turn boost Sterling sentiment and push the Pound US Dollar exchange rate back towards the key resistance levels GBP/USD touched at the start of this week.

Euro (EUR) Subdued ahead of ECB Rate Decision

The Euro traded without any clear directional bias on Wednesday, as EUR investors were reluctant to make any aggressive bets on the single currency ahead of the European Central Bank’s (ECB) upcoming rate decision.

While the ECB is not expected to announce any policy changes this month, a more cautious outlook from the bank in light of Europe’s recent coronavirus woes could weigh on the single currency.

Also potentially influencing EUR exchange rates today will be the Eurozone’s latest consumer sentiment index. Will a fall in consumer morale put additional pressure on the Euro?

US Dollar (USD) Firm amid Cautious Mood

The US Dollar ticked higher yesterday as a cautious market mood and modest rise in US Treasury yields bolstered demand for the safe-haven ‘Greenback’.

The deterioration of risk appetite appeared to be driven mostly by concerns that global coronavirus cases are on the rise again and how this may disrupt the global economic recovery.

Coming up, the focus for USD investors today will be on last week’s initial jobless claims. The previous week saw new claims fall to a post-pandemic low, but is the US labour market strong enough to sustain this downtrend?

Canadian Dollar (CAD) Soars as BoC to Cut QE Purchases

The Canadian Dollar rocketed higher on Wednesday after the Bank of Canada (BoC) announced it would be adjusting its weekly quantitative easing purchases.

The BoC announced that it would be slashing its bond purchases from CA$4bn to CA$3bn but noted that its ‘extraordinary monetary policy’ was still required to support the country’s economic recovery.

Australian Dollar (AUD) Flat in Risk-Off Trade

The Australian Dollar struggled overnight on Thursday, as investors continued to shy away from the risk-sensitive ‘Aussie’ amid a prevailing sense of caution.

New Zealand Dollar (NZD) Rangebound amid Weaker Market Sentiment

The New Zealand Dollar traded in a narrow range in overnight trade, with the ‘Kiwi’ struggling to attract investors as market sentiment remained weak.

Data Releases

11:00 GBP CBI Industrial Trends Orders (Apr)

12:45 EUR ECB Rate Decision

13:30 USD Initial Jobless Claims (17/Apr)

15:00 EUR Consumer Confidence (Apr)

Matthew Andrews

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