UK inflation weighs on the Pound

Daily Currency Update

The Pound could feel the selling pressure against the US Dollar and Euro following the release of softer UK CPI figures this morning.  On the release of the latest inflation figures the pound traded around the 1.2960 level against the US Dollar and retreated from 1.1603 to 1.1530 region against the Euro following the release. The United Kingdom's annual Consumer Price Index (CPI) advanced 7.9% in June, slowing sharply from an 8.7% increase recorded in May, the latest data published by the UK Office for National Statistics (ONS) The market had estimated an 8.2% growth. The Core CPI gauge which excludes volatile food and energy items, increased 6.9% year on year last month, compared with a 7.1% rise seen in May while beating expectations of a 7.1% print. Meanwhile, the UK Consumer Price Index rose 0.1% month on month in June vs. the 0.4% estimates and the 0.7% previous reading. The UK Retail Price Index for June climbed 0.3% month on month and 10.7% year on year, missing expectations.

 

The US Dollar is also supported by the data released on Tuesday, showing that the core US Retail Sales excluding automobiles, gasoline, building materials, and food services - remained resilient in June and this in turn supports concerns that the recent stance of the Federal Reserve might change and focus on continuing their rate hiking cycle if needed to while the data show consumers are still spending. The markets however still appear to have been pricing out the possibility of any further Fed rate hikes after the widely expected 25 bps lift-off at the upcoming policy meeting on July 25-26. This is reinforced by the ongoing decline in the US Treasury bond yield.