Home Daily Commentaries US inflation surprise brings back risk appetite

US inflation surprise brings back risk appetite

Thursday 11 August, 2022

Daily Currency Update

In the UK, the calendar has been extremely quiet this week, with political sentiment dominating activity. Headlines surrounding a possible power cut in the UK in January, energy caps being raised and the Conservative leadership election are in focus, though it's tomorrow's UK GDP data that may breath life into the pound. Expectations are for a weaker negative figure, supporting comments from the head of the Bank Of England, Andrew Bailey, that the UK could be heading into a long and dark 5 quarter recession. This could be potentially damaging for the pound medium term, but for now, there isn't anything to drive the currency in either direction.

Key Movers

Inflation forecasts in the US surprised the markets to the downside yesterday, with year on year figures now suggesting that inflation is only at 6.5% stateside. Though still high, the threat of double digit inflation seems to have abated, and with it, a renewed sense of optimism in the market. A return of risk appetite saw most of the major global stock indexes perform well, and with it the US dollar appears to be on the back foot. Federal Reserve members in the US members continue to reiterate that their interest rate will be increased to between 3.25% and 3.5% by year end, and there are some forecasting rates to rise to 4% in 2023. However for now, the hawkishness expected from the Federal Reserve may have eased off, with a possibility that the central bank may only increase interest rates by 0.5% in September instead of 0.75%. The ongoing Russian gas supply situation seems to have also temporarily resolved itself, with key European countries including Poland and Hungary now being supplied by Russia. This could also be a cause for optimism in the market and the global risk appetite we have seen in the last 24 hours.

Expected Ranges

  • GBP/USD: 1.2180 - 1.2255 ▲
  • GBP/EUR: 1.1780 - 1.1845 ▼
  • GBP/AUD: 1.7020 - 1.7325 ▲
  • EUR/USD: 1.0340 - 1.0425 ▲