US Dollar Slumps as Inflation Continues to Ease, Pound Slashes Gains as UK CPI Misses Forecasts

GBP/EUR Exchange Rate Retreats from Ten-Month High

After striking a ten-month high, the Pound Euro (GBP/EUR) exchange rate then steadily declined over the past seven days, with the single currency benefitting from its negative correlation with a tumbling US Dollar (USD).

Better-than-forecast UK GDP data provided a brief, modest upside to the Pound (GBP), but ongoing USD weakness and a souring market mood helped the safer Euro (EUR) firm through to the end of the week.

The pairing continued to trend lower through the start of this week’s trade. GBP/EUR plunged to a near two-month low after UK inflation cooled more than forecast, dampening Bank of England (BoE) bets.

Looking ahead, the UK’s latest retail sales report is due on Friday. Growth is expected to ease from 0.3% to 0.2%. Could this modest rise support the Pound? Or will slowing sales growth trouble GBP investors?

GBP/USD Exchange Rate Sheds Gains on Softer UK Inflation

The Pound US Dollar (GBP/USD) exchange rate surged to a 15-month high last week, as expectations of a 50bps interest rate hike from the Bank of England in August boosted Sterling.

In the wake of record-high wage growth earlier last week, the UK’s stronger-than-expected GDP data fuelled bets on another bumper hike from the British central bank.

An upbeat market mood also supported the increasingly risk-sensitive Pound, although Sterling began to trim its gains as sentiment began to sour. The softer UK inflation print then saw GBP slump against USD.

The UK’s July PMIs are due out next week. Any signs of struggling UK economic activity or easing inflationary pressures could create significant headwinds for Sterling.

USD/GBP Exchange Rate Recovers as Risk Appetite Falters

The US Dollar Pound (USD/GBP) exchange rate plunged last week, hitting a 15-month low, after cooler-than-forecast US inflation saw markets scale back bets on further Federal Reserve tightening.

This selloff was compounded by a softer PPI reading, which provided additional evidence that the Fed seems to be winning its fight against inflation.

The safe-haven ‘Greenback’ eventually found some support this week as risk appetite fizzled out, allowing USD to rally against a weakening Pound.

Next week, the US Dollar could be muted as investors await the Fed decision on Wednesday evening. In the meantime, weaker PMI results and improving consumer confidence could cause mixed movement.

EUR/USD Exchange Rate Strikes 16-Month High

The Euro US Dollar (EUR/USD) exchange rate strengthened over the past seven days, with the single currency benefitting from the collapse of the US Dollar.

In addition, hawkish meeting minutes from the European Central Bank (ECB) and better-than-forecast Eurozone trade data lent the Euro further support.

EUR/USD briefly struck a 16-month high early this week, before a lack of Eurozone data saw the single currency trim its gains. However, an upward revision to the Eurozone’s core inflation rate on Wednesday kept the currency pairing afloat.

The Eurozone PMIs are the focus for EUR investors over the coming seven days. Could another abysmal manufacturing reading see the Euro fall sharply lower?

Samuel Birnie

Contact Samuel Birnie


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