Pound Volatile as UK Inflation Surges to 40-Year High

Pound (GBP) Hit by Higher-Than-Expected Inflation

The Pound (GBP) weakened against several peers in midweek trade. New data revealed that UK inflation surged to 11.1% in the year to October, putting the Bank of England (BoE) under pressure to hike interest rates further while threatening to pull more UK households into poverty.

Sterling was later able to strengthen however, on the back of some hawkish comments from BoE Governor Andrew Bailey

Today, the long-awaited Autumn Budget will be in the spotlight, triggering potential volatility in GBP exchange rates. 

US Dollar (USD) Dented by Continuing Rate Hike Speculation

The US Dollar remained pressured yesterday as markets continue to pare back Federal Reserve rate hike bets. In contrast with surging UK prices, US inflation cooled more than forecast in the year to October.

US data printed mixed on Wednesday, minimising data-led gains: while retails sales exceeded expectations, industrial production contracted unexpectedly last month. However, a risk-off mood capped USD losses to some extent.

Speeches from the Fed’s Michelle Bowman and Philip Jefferson are likely to direct ‘Greenback’ movement today, giving a clearer indication of the central bank’s stance on recent inflation data. 

Euro (EUR) Struggles to Gain as Geopolitical Tensions Intensify

The Euro (EUR) succumbed to headwinds on Wednesday as a possible escalation in the conflict between Russia and Ukraine threatened geopolitical repercussions.

Dampening the Euro-positive effects of recent hawkish commentary from the European Central Bank (ECB), a deadly missile strike on a village in eastern Poland triggered speculation that if Russia was to blame, NATO could invoke Article 5 of the NATO treaty.

A lack of data today leaves the single currency to trade further on external factors, particularly market mood. If bearish sentiment prevails, EUR could weaken further.

Canadian Dollar (CAD) Sinks as Crude Oil Devalues

The Canadian Dollar (CAD) tumbled on Wednesday despite annualised inflation data printing as expected. Consumer price inflation in Canada remains far less pronounced than in other G7 countries.

Instead, the ‘Loonie’ was subdued by a slide in the price of crude oil. WTI crude futures fell by more than 2% to below $85 per barrel, marking a 3-week low as fresh Covid outbreaks in China clouded the demand forecast.

Australian Dollar (AUD) Ticks Lower, Rebounds

The Australian Dollar (AUD) trended down in overnight trade, following the release of October’s jobs report – despite a reduction in unemployment. The participation rate remained at 66.5% rather than climbing as expected.

Subsequently, AUD rebounded as investors assessed the data.

New Zealand Dollar (NZD) Wavers Overnight

The New Zealand Dollar (NZD) traded in a mixed range against its peers during the Asian session, but firmed overall as commodity prices saw some improvement. A higher-than-expected increase in foreign direct investment in China may also have helped boost the ‘Kiwi’.

Matthew Andrews

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