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EUR/USD tumbles to three-month low as US inflation rockets above expectations

currency-newsEUR/USD tumbles to three-month low as US inflation rockets above expectations
The US dollar rallied on Tuesday as the latest US inflation figures overshot expectations for the fourth consecutive month.

Meanwhile, the pound is trading with modest gains so far this morning, with GBP/EUR buoyed at €1.1739 and GBP/USD climbing to $1.3837. GBP/CAD and GBP/AUD are holding steady at C$1.7307 and AU$1.8560 respectively, while GBP/NZD has plummeted to NZ$1.9725.

Looking ahead, will a positive UK inflation release help to propel Sterling higher today?

What’s been happening?

The US dollar strengthened against the majority of its peers yesterday, in the wake of the latest US consumer price index.

USD exchange rates surged as June’s CPI figures reported US inflation soared to 5.4% from 5% the previous month, smashing forecasts price growth would slow to 4.9%.

Unsurprisingly, the dizzying rise in inflation continues to fuel speculation that the Federal Reserve will soon need to act by tightening its monetary policy.

This upswing in the US dollar came at the expense of the euro, due to the strong negative correlation between the pairing.

Further reinforcing this downside in EUR exchange rates were comments from European Central Bank (ECB) President Christine Lagarde, which sought to cool speculation the bank could begin tapering its monetary policy this year.

The pound, meanwhile, traded in a narrow range through most of yesterday’s European trading session as optimism over Boris Johnson’s reopening confirmation was offset by concerns over the recent spike in UK coronavirus cases.

What’s coming up?

Kicking off today’s session was the release of the UK’s own CPI figures.

Data published by the Office for National Statistics (ONS), reported domestic inflation accelerated from 2.1% to 2.5% last month, surpassing forecasts it would rise to 2.2% and offering support to the pound this morning.

Also coming up this morning will be the publication of the Eurozone’s latest industrial production figures, which could exert some pressure on the euro amidst forecasts factory output in the bloc contracted in June.

In the spotlight for USD investors today will be the start of Jerome Powell’s two-day testimony in front of Congress, with the Fed Chair expected to be grilled on his outlook for the US economy as well as the US central bank’s plans for monetary policy.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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