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US dollar pares recent gains as stock markets recover

GBP - British Pound

This morning we have seen the latest inflation data from the UK with CPI showing a fall from 2.5% to 2%. Many were expecting a slight retracement this month, with many restrictions in the hospitality sector lifted earlier last year compared to this. What would have usually prompted a sell off in sterling didn't materialise. This is likely down to expectations that CPI will push higher as we near Christmas, mainly on the back of rising energy costs and no Eat-Out-To-Help out promotion this August.

Also yesterday's fall in GBP/USD from close to 1.39 to a low of 1.3740 meant another drop was less likely. An improvement in global risk sentiment after a few days of market jitters on the back of poor Chinese data, and the Taliban reclaiming control of Afghanistan which saw stock markets fall seems to have to come to an end, and is also likely supporting sterling.

GBP/USD is trading around 1.3745 with GBP/EUR at 1.1720.

Key Movers

As mentioned earlier global risk sentiment has improved this morning which means that safe haven assets such as the US dollar, which are sought when poor economic data is released or there are global ructions from geopolitics, as seen in Afghanistan, fade from investors' memories.

Yesterday saw poor Retail Sales numbers from the States for July with a slight fall precited in the overall reading come in much worse than predicted. The overall reading slipped -1.1% m/m with the core reading, which strips out car sales, dropping -0.4% m/m when a small uptick of 0.2% was eyed. It appears US households are possibly beginning to reign in spending in the face of concerns over the Delta variant spreading throughout the country as well as rising inflation pushing prices higher. It seems however that this uneasiness is starting to abate and markets are possibly now not expecting any big changes in monetary policy from Chairman of the US Federal Reserve, Jay Powell, in his keynote speech next Thursday at the annual Jackson Hole Economic Symposium.

Away from the States, the Reserve Bank of New Zealand kept rates on hold at 0.25% on the back of the snap lockdown imposed by PM Jacinda Ardern after an untraceable COVID-19 case was confirmed in Auckland.

Later today we have the final print of July Eurozone CPI, US Building data, as well as the minutes from the last Federal Open Market Committee interest rate decision. EUR/USD trades at 1.1720.

Expected Ranges

GBP/USD: 1.37 - 1.3830 ▼

GBP/EUR: 1.1685 - 1.1790 ▼

EUR/USD: 1.1690 - 1.18 ▼

GBP/AUD: 1.8845 - 1.90 ▲

GBP/NZD: 1.98 - 1.9965 ▼