FOMC hold inflationary concern
Daily Currency Update
UK inflation data showed a fall yesterday morning but missed the forecast figure. Sterling jumped against the USD and EUR on the news as the inflation figure remains 3 times over the target figure of 2%, increasing bets that the Bank of England may look to raise interest rates further to tackle long-term inflationary pressures. Following the release was Eurozone flash GDP where the second quarter came in at 0.3% and 0.6% year-on-year, matching expectations. Alongside this Eurozone industrial production was stronger-than-expected for June with month-on-month figures coming in at 0.5% versus the -0.1% forecast and monthly output rose 0.5% also. The news did little to support the EUR, with the bigger picture of uncertain economic growth and inflation. GBP/EUR has broken 1.1700 over the past couple of hours after steadily rising from 1.1640 yesterday. GBP/USD has traded at 1.2700 in the past 24 hours, touching 1.2760 at the highs.There remain a few key releases ahead of the weekend with US unemployment claims tomorrow and UK retail sales early tomorrow morning. These will likely have a say on movement, but the essential data releases for the week have now passed and market participants will now start to position themselves ahead of next week.
Key Movers
The USD has been bought this morning on news that rating agency Fitch Ratings may consider rethinking China’s A+ sovereign credit rating, especially if corporate debt conditions worsen and the government expands its balance sheet to support the companies. The news follows the FED minutes yesterday which showed a number of officials from the July meeting pointing towards more interest rate hikes to combat high inflation levels. It seems most participants continued to see upside risk to inflation. However, this meeting was before a raft of positive US data also in July. GBP/USD sits just above 1.2700 and EUR/USD now trades back below 1.0900. AUD/USD, which is a good indicator on the risk appetite in the market, shows risk off as it has fallen to lows last seen in October 2022 – currently 0.6400. The Aussie hasn’t been helped by domestic jobs data that was poor overnight.Expected Ranges
- GBP/USD: 1.2680 - 1.2760 ▲
- GBP/EUR: 1.1640 - 1.1720 ▲
- GBP/AUD: 1.9780 - 1.9940 ▲
- EUR/USD: 1.0820 - 1.0930 ▼