Pound mixed as US inflation data panics stock markets

The pound was on mixed form yesterday, with what was meant to be a unifying speech from Foreign Secretary Boris Johnson on Brexit changing little regarding the UK’s political situation.

The pound is on mixed form again this morning. GBP/EUR is flat at €1.1240, while GBP/USD is up 0.3% to US$1.4056. GBP/AUD has fallen -0.1% to AU$1.7647, GBP/NZD is down -0.2% to NZ$1.8973, and GBP/CAD is up 0.2% to C$1.7523.

Read on to see why strong US economic data actually caused the US dollar to fall…

What’s been happening?

Pound Sterling was stuck around opening levels versus the euro, but managed to make solid gains versus the US dollar yesterday.

The UK data calendar was entirely devoid of economic releases, while the day’s Brexit speech from Foreign Secretary Boris Johnson did nothing to alter the outlook on the UK-EU divorce.

While the speech had been promoted as an attempt to unify Leavers and Remainers, Johnson continued to demonstrate his ‘hard Brexit’ agenda.

GBP/EUR was left flat after the day’s fourth-quarter Eurozone GDP figures largely printed in line with forecasts.

Even though Italian growth figures were slightly below forecasts, overall the data continues to show the Eurozone economy is in a robust state.

Both the pound and the euro were supported by the latest US developments, with an unexpected rise in inflation and faster-than-expected wage growth causing chaos on the markets.

The figures threaten to create even more volatility in global stock markets, which could destabilise the US economy and therefore see the Federal Reserve having to slow down the pace of interest rate hikes.

Markets were therefore withdrawing from the US dollar to other stable currencies, such as the pound, euro and Japanese yen.

What's coming up?

There is once again no UK economic data set for release today.

The Eurozone data calendar offers the latest trade balance figures for December, which may have little effect on the euro given the forecasts are for the surplus to remain virtually unchanged on the month.

Speeches from European Central Bank (ECB) officials Yves Mersch, Peter Praet and Sabine Lautenschläger could have a larger impact if they say anything that may change the monetary policy outlook for the currency bloc.

A run of industry data and jobless claims figures from the US today could keep pressure on the US dollar if they show solid growth and therefore keep the odds of a Fed rate hike high.

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Reaz Rahman
Senior Dealer

Reaz, our Senior Currency Dealer, joined us in January 2015. Reaz draws on his detailed knowledge of the foreign exchange markets to help customers to choose the right service and time to transfer.