Home Daily Commentaries Inflationary worries weigh on the pound

Inflationary worries weigh on the pound

Thursday 18 August, 2022

Daily Currency Update

The pound continued to push lower versus the US dollar through the session yesterday afternoon, as the UK saw its highest inflation figure in 40 years at 10.1%, driven by soaring prices for food and fuel as households come under mounting pressure from the cost of living crisis. With the revelation that inflation could reach 13.3% later this year as well, price pressure doesn’t seem to be pulling back. This, alongside recession fears and the Federal Reserve seemingly continuing to tighten policy, has put GBP firmly under pressure against the USD.

Key Movers

Yesterday we saw Core US retail sales come in at 0.4% vs an expected -0.1% which gave the US dollar another boost with the Federal Reserve focusing on data moving forward. Later in the evening, the FOMC released minutes from their latest meeting which showed a clean sweep with all members agreeing to raise rates by 75 basis points and many interested to tighten further. Federal Reserve members saw “little evidence” of inflation subsiding and that it could take “considerable” time for the situation to be resolved. This was before the CPI and PPI readings last week, however, which showed inflation pulling back. In Europe, GDP quarterly figures yesterday came in at 0.6% which was slightly lower than the 0.7% expected. Following this, ECB board member Isabel Schnabel spoke on the outlook for the Eurozone, commenting on the inflationary pressures on potential growth in the short term, expectations of growth to slow and possible recession. Overall, a dismal outlook for the Eurozone could weigh heavy on the EUR.

Expected Ranges

  • GBP/USD: 1.2005 - 1.2085 ▲
  • GBP/EUR: 1.1820 - 1.1885 ▲
  • EUR/USD: 1.0120 - 1.0205 ▲