Pound (GBP) Undermined by BoE Warnings
The Pound (GBP) gained some ground against most of its major rivals yesterday, following Boris Johnson’s confirmation that the UK economy will reopen as planned on 19 July.
However, Sterling was undermined by warnings from the Bank of England (BoE) over potential risks to the UK economy.
In its Financial Stability Report, the central bank raised concerns that ‘increased risk-taking in global financial markets’ could ultimately drive up borrowing costs.
The report also expressed fears that some UK businesses and households may struggle as state financial support is phased out.
Turning to today, the Pound is climbing this morning after the UK inflation figures smashed forecasts of 2.2% to come in at 2.5%, the highest level since August 2018. This may act as a tailwind for Sterling throughout the day.
Euro (EUR) Slips on USD Strength
The Euro (EUR) fell during yesterday’s session as the single currency suffered from its strong negative correlation to a strengthening US Dollar (USD).
Worries that the spread of the Delta variant could dent the Eurozone’s economic recovery also weighed on the single currency, with new restrictions already impacting tourism in countries such as Spain and Cyprus.
The Euro could face more headwinds today if the US Dollar continues to strengthen. In addition, industrial production in the Eurozone is projected to have fallen in May, which may also drag on EUR exchange rates.
US Dollar (USD) Roars Higher Following Surge in US Inflation
The US Dollar shot up yesterday, hitting a three-month high against the Euro, as US inflation overshot expectations for the fourth month running.
US inflation increased to 5.4% in June, above forecasts of 4.9% and reaching a new 13-year high, as the US economy continues to recover at a rapid pace.
The result piles fresh pressure on the Federal Reserve to tighten monetary policy, which also drove the upside in USD.
With no major market-moving data from the US today, the ‘Greenback’ may remain buoyed by the inflation data. USD investors will be keenly awaiting Fed Chair Jerome Powell’s testimony before Congress this evening to see how he will respond.
Canadian Dollar (CAD) Fluctuates on Volatile Oil Prices
The Canadian Dollar (CAD) traded in a wide range yesterday, as volatile oil prices caused the commodity-linked currency to waver.
An overall recovery in oil was offset by the surge in USD, keeping the Canadian Dollar relatively subdued.
If oil prices continue to climb, CAD could make some gains today. The Bank of Canada’s (BoC) interest rate decision could also prompt some movement, with CAD investors looking for any hints of hawkishness.
Australian Dollar (AUD) Firms on Consumer Confidence
The Australian Dollar (AUD) trended higher in overnight trade, after the Westpac consumer confidence index showed a surprise increase in consumer confidence.
New Zealand Dollar (NZD) Surges on Hawkish RBNZ
The New Zealand Dollar (NZD) jumped overnight, as the Reserve Bank of New Zealand (RBNZ) surprised markets with a hawkish shift in policy.
The RBNZ announced that it would halt its quantitative easing programme by 23 July, paving the way for a rate hike as early as August. The news saw investors flock to the ‘Kiwi’, which hit a one-week high against many of its peers.