Daily Currency Update

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UK GDP this morning

GBP - British Pound

This morning saw the release of our UK GDP for the second quarter figures, which came out at a strong 4.8%, but didn't surprise the market. As the UK economy rebounds post the pandemic, and a successful vaccination programme allows the economy to start returning to normal, most investors expected this type of figure.

On the other hand, industrial production and manufacturing production posted weaker than expected results, as did UK construction output. This has provided a mixed bag for Sterling, which has generally strengthened overnight, especially against the euro, but the move has been relatively underwhelming.

With strong GDP figures, the argument now turns to whether the Bank of England should consider similar steps to the Federal Reserve in tightening their monetary policy and tapering some of their asset purchasing programme too. If this rhetoric picks up steam, sterling could remain on the front foot in the coming weeks.

Key Movers

After a strong week for the US dollar, the US currency traded significantly weaker overnight against the euro and the pound. US stocks also hit record highs while treasury yields declined. Yesterday saw relatively soft inflation figures released stateside, with a posting down 0.5% from last month's 0.9% reading. Core CPI was also significantly worse than expected.

This pours water on the argument that inflation is a concern in America, and that the Federal Reserve needs to move to tighten their monetary policy to counteract the impact of inflation. However, a deeper look at the figures shows that inflation isn't cooling but wasn't as high a number as what was posted last month, with a number we hadn't seen in 13 years.

This therefore doesn't look like it will derail the Federal Reserve's plans of beginning to taper their asset purchase programme soon. What's more uncertain is the timing behind when this will begin. Federal Reserve members are split over when the tapering should begin, with some citing an immediate start and others suggesting that the central bank should wait till October. This uncertainty could cause some volatility for the US dollar in the coming weeks.

We see the release of US PPI data later today, which is another inflation release, and will be watched for further signs of what the Federal Reserve could do next.

Expected Ranges

GBP/USD: 1.3820 - 1.3890 ▲

GBP/EUR: 1.1785 - 1.1820 ▲

EUR/USD: 1.1705 - 1.1775 ▼

GBP/AUD: 1.8725 - 1.9010 ▲