Pound Spikes as UK Inflation Hits Three-Year High

Pound (GBP) Upside Undermined by Coronavirus Concerns 

The Pound (GBP) climbed yesterday after the UK inflation rate printed above expectations, but then fell against many of its rivals in the afternoon. 

UK inflation rose to a three-year high of 2.5% in June, above expectations of 2.2%. This caused Sterling to spike, hitting a three-month high against the Euro (EUR). 

However, GBP lost its gains in the afternoon as daily coronavirus cases surged to over 40,000, raising concerns over the UK’s unlocking strategy. 

This morning’s mixed jobs data from the UK may potentially dent the Pound. While average earnings came in slightly higher than expected, the claimant count and employment change figures both missed forecasts, and the unemployment rate rose from 4.7% to 4.8%. 

Euro (EUR) Rebounds as USD Declines 

The Euro was initially subdued yesterday but managed to rebound thanks to its strong negative correlation with a weakening US Dollar (USD). 

Industrial production in the Eurozone printed below expectations for both the yearly and monthly figures, with the latter contracting by 1% in May, which dented the single currency in the morning. 

However, EUR exchange rates bounced back as the US Dollar declined. 

With no major Eurozone data releases today, USD strength and European coronavirus news could drive most movement in the Euro. 

US Dollar (USD) Dips on Dovish Fed Testimony 

The US Dollar weakened yesterday as Federal Reserve Chair Jerome Powell maintained the Fed’s dovish outlook in his testimony to Congress. 

The testimony was published ahead of the congressional hearing, with Powell reiterating the view that rises in inflation were driven to a large extent by temporary causes, such as supply bottlenecks. Investors’ hopes of hawkishness were dashed, dampening demand for USD. 

Turning to today, the ‘Greenback’ could potentially find some support from the latest US jobs data, as unemployment benefits claims are expected to drop once again. However, jobless claims seem to be levelling out and they remain above pre-pandemic levels, so a sharp upside is unlikely. 

Canadian Dollar (CAD) Down as Global Oil Supply Set to Increase 

The Canadian Dollar (CAD) slipped yesterday, as sliding oil prices dragged on the commodity-linked ‘Loonie’. 

Reports that Saudi Arabia and the United Arab Emirates are close to resolving their dispute over oil output means OPEC+ could increase production next, which sent oil prices tumbling. 

CAD could be bolstered by Canada’s employment change figures this afternoon, with employment set to have increase by 270,000 in June, but low oil prices could keep the currency under pressure. 

Australian Dollar (AUD) Wavers on Mixed Data 

The Australian Dollar (AUD) dipped and then rebounded overnight, as markets digested the mixed employment data from Australia and economic data from China. 

New Zealand Dollar (NZD) Muted amid Lack of Data 

The New Zealand Dollar (NZD) trended slightly lower in overnight trade as a lack of data left the ‘Kiwi’ open to losses.