Pound Rises and US Dollar Drops as Markets Hopeful ahead of US CPI

Pound (GBP) Rises as Markets Rally

The Pound (GBP) ticked higher yesterday, despite UK GDP in July printing at 0.2% rather than the forecast 0.4%.

The upside came as a bullish market mood boosted the risk-sensitive UK currency. Ukraine’s military successes lifted hopes for an early end to the war, while markets were also optimistic ahead of an expected drop in US inflation today.

This morning, Sterling has ticked higher on a mixed labour market report. Supporting the Pound, the UK unemployment rate hit a 48-year low and wage growth exceeded forecasts. However, real incomes fell again as inflation erodes households’ spending power.

Euro (EUR) Undermined by Energy Fears

The Euro (EUR) initially firmed yesterday as investors dared to hope for a less severe energy crisis thanks to Ukraine’s recent victories against Russia.

However, worries about the cost and shortage of gas in Europe continued to pressure EUR, trimming its gains. In its latest forecast, the Ifo warned that Germany – Europe’s largest economy – will fall into a recession next year due to Russia’s gas cuts.

More downbeat news from Germany could weigh on the single currency today. Later this morning, Germany’s ZEW economic sentiment index is expected to drop to a fresh 14-year low.

US Dollar (USD) Slips ahead of US Inflation

The US Dollar (USD) dropped on Monday as an improving market mood and reduced Federal Reserve rate hike bets dented the safe-haven currency.

Global markets were upbeat ahead of today’s US inflation data, as a forecast fall in inflation could see the Fed ease off its aggressive tightening cycle.

If American inflation does cool again today, as expected, the US Dollar could fall further. A surprise rise in inflation would likely see USD jump higher.

Canadian Dollar (CAD) Softens despite Rising Oil Prices

The crude-linked Canadian Dollar (CAD) slipped against its stronger peers yesterday, despite an uptick in oil prices.

With no Canadian data out today, CAD may be vulnerable to further losses.

Australian Dollar (AUD) Softens as Traders Grow Cautious

The Australian Dollar (AUD) slipped overnight, despite positive Australian data and a risk-on market mood, as currency traders grew cautious ahead of today’s US inflation rate reading.

New Zealand Dollar (NZD) Slips alongside AUD

Likewise, the New Zealand Dollar (NZD) edged lower in overnight trade, moving in tandem with AUD.

Samuel Birnie

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