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Markets await US CPI data

Daily Currency Update

It was a quiet day for Sterling yesterday, with the markets eagerly anticipating tomorrow’s Q1 prelim GDP reading at 7am GMT. GBP/EUR is still trading around €1.1650-17 and GBP/USD is still trading around the $1.23s. After Bank of England Governor Andrew Bailey’s comments last week regarding UK growth, this GDP reading will likely be extremely important for the pound’s direction in coming weeks.

There were clashes in the first session of the new parliament over the cost of living crisis which has seen Sterling suffer of late. Keir Starmer believes giving money to the situation is needed, however the Conservative government wants to grow its way out of the crisis having already spent billions protecting the economy during the worst of the pandemic.

Key Movers

The main event for the US dollar this week is CPI numbers. An annualised 8.1% is predicted for April, down from 8.5% seen in March. Should the number beat estimates then it puts the prospect of a 75bp interest rate hike back on the table for the next FOMC meeting which would likely benefit the US dollar and could see stocks retrace some of their gains.

On the other hand, should we see a fall then it could mean we have seen the peak of inflation and although more interest rate hikes could be needed it could see the US dollar finally start to lose some of its strength. Although current geopolitics mean there is still plenty of risk out there, meaning a rapid drop is pretty unlikely. Investors tend to move towards the safe haven US dollar during times of uncertainty.

May’s German ZEW Economic survey came out yesterday at -34.3 better than -43 predicted and an improvement from the previous month. However, the negatives in the survey still far outweigh the positives for a third straight month. It is impacted by the Russian invasion of Ukraine. Europe’s biggest economy, Germany, is still struggling to contain  inflation, which is at its highest level since 1981 at 7.4%

Expected Ranges

  • GBP/USD: 1.2295 - 1.2385 ▲
  • GBP/EUR: 1.1655 - 1.1740 ▲
  • GBP/AUD: 1.7620 - 1.7750 ▼
  • EUR/USD: 1.0505 - 1.0595 ▲