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GBP/USD holds near $1.42 as UK inflation surges

currency-newsGBP/USD holds near $1.42 as UK inflation surges
The US dollar suffered an aggressive selloff on Tuesday, amidst a prevailing risk-on mood and dovish Federal Reserve expectations.
Meanwhile, the pound is mostly flat so far this morning, with GBP/EUR muted at €1.1603 and GBP/USD steady at $1.4196. GBP/CAD is rangebound at C$1.7129, while GBP/AUD and GBP/NZD have ticked up to AU$1.8274 and NZ$1.9660, respectively.
Coming up, with UK inflation printing above expectations this morning, will Sterling strengthen through today’s session?

What’s been happening?

The US dollar fell sharply through yesterday’s European trading session, as positive market sentiment limited the appeal of the safe-haven currency.
This upbeat mood came as the US showed readiness to begin sharing its vaccine supplies with less developed nations, bolstering hopes that this could help to stem the rise of new variants.
Further undermining the US dollar were expectations that the Federal Reserve will be willing to look past the recent acceleration of domestic inflation and keep its highly accommodative monetary policy in place for the foreseeable future.
This pullback in the US dollar directly benefited the euro thanks to the negative correlation in the pairing. The single currency also garnered additional support as the EU’s accelerating vaccination programme and the lifting of more restrictions in various countries helped to boost economic optimism in the Eurozone.
The pound, meanwhile, saw modest gains on Tuesday as a surprise drop in the UK’s unemployment rate in March was tempered by ongoing concerns over the spread of the Indian variant of the coronavirus and its potential impact on the government’s roadmap for reopening the economy.

What’s coming up?

Turning to today’s session, the initial focus will be the UK’s consumer price index (CPI) which was published earlier this morning.
The CPI figures reported that domestic inflation jumped from 0.7% to 1.5% in April, beating forecasts and potentially offering additional support to the pound today.
The Eurozone will also release its finalised CPI figures for April this morning, with the euro potentially extending yesterday’s gains if inflation in the bloc is confirmed to have accelerated to a two-year high.
Finally, later this evening we have the minutes from the Federal Open Market Committee’s most recent policy meeting. These could put additional pressure on the US dollar, as they will likely reinforce the bank’s current dovish bias.
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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