US tariffs pushes inflation to 3-year high

Daily Currency Update

The pound opened yesterday’s session on a firm footing after upbeat UK GDP and factory output figures. The Office for National Statistics reported Q2 economic growth of 0.3%, ahead of forecasts of 0.1%, with June GDP rising 0.4% versus the 0.1% consensus. Factory output also exceeded expectations - manufacturing and industrial production climbed 0.5% and 0.7% month-on-month in June, respectively, rebounding from declines of over 1% in May.

The stronger data suggested the UK economy is holding up better than anticipated, potentially allowing the Bank of England to ease interest rates more gradually rather than making sharp cuts. However, a steep drop in quarterly Total Business Investment dented sentiment, and sterling fell across the board. The biggest losses came against the USD after stronger-than-expected US PPI figures pushed GBP/USD back to the low 1.35s. Against the euro, the pound’s pullback was more muted, holding above 1.161.

The euro had a choppy session, losing nearly 0.6% against the dollar after hotter-than-expected US PPI data and a drop in US jobless claims caught markets off guard. However, it recovered much of its early losses versus sterling during the overnight session, helped by cautious optimism ahead of today’s Trump–Putin meeting. President Trump stated that “Putin won’t mess with me,” outlining his aim to “set the table” for a future meeting involving the Russian leader and Ukraine’s President Zelensky.